| Thursday, September 10, 2020 Headlines 1. Price action for Apple shares shows potential trouble Market Moves Stock buyers attempted a rally at the open, but were met by relentless selling throughout the session as the Nasdaq 100 (NDX) closed more than two percent lower. The S&P 500 index (SPX) wasn't far behind, leaving some warning signals to show up in stocks like Apple (AAPL). Surprisingly, the CBOE Volatility Index (VIX) did not make a new two-day high, even though the SPX did make a two-day low.
While no one ever knows with certainty what the market will bring, experienced chart watchers know that signals within the price action are occasionally too important to ignore. Such is the case with Apple right now. What follows in the rest of this edition of the Chart Advisor is in no way intended to be a direct recommendation to buy or sell shares. Anyone making decisions about their money has to stand on their own merits. This is an educational example for those who hope to recognize new ways to interpret price data and the patterns it leaves behind.
The charts below show shares of AAPL in three different time frames. The first is the current daily chart. It shows four markers, all of which are pessimistic for the value of the shares. The first (A) is a bearish engulfing candle pattern generated in the past two days. This price pattern is taking place just as the price lands on an important trendine. The gray colored line is a more traditional version of a trendline drawn in technical analysis because it doesn't exclude any data. The red line is a bit more important for today's observation because it has more touches and seems to track well with the current price action.
The second marker (B) shows the way the Relative Strength Index (RSI) has broken below the level of a previous trough. This is a signal that price may be ready to change its trend into a downward slope. The third marker (C) shows how the Stochastic indicator is generating a similar signal, but how it has already reached the oversold region.
The final marker (D) is a Least-Squares Moving Average applied to the Net Volume indicator (20-day look-back). The fact that this indicator has been declining over the past two months even as price has been rising shows a bearish divergence that implies investors are beginning to subtly sell whenever they think they can best take profits.  Not the First Time Technical indicators are not flawless forecasting tools that tell precisely where prices will go next. These should always be read as part of a body of evidence that helps an investor or analyst draw an informed conclusion. In this case, consider the benefit of noting such signals on AAPL shares. Right up until the time where Robintrack.com (one student's clever project for a class assignment) became obsolete when Robinhood changed its data access policy, the site showed that AAPL was by far the most popularly held stock among that broker's customers.
If AAPL has shown these kinds of signals in timely fashion before (see chart below), then it might be all the more useful to look at such signals now. Since Apple is the most influential stock among the constellation of indexes and ETFs out there, it isn't crazy to think its price action could be meaningful to study. After all, these same signals appeared at the beginning of the COVID-19 pandemic's influence on the markets. 
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Doesn't Always Happen the Same Way These signals on AAPL don't always appear in the same way. Consider the case of how, later in the year 2018, stocks began to slow in their upward climb. Before making a significant 20% correction by year's end, the price action in AAPL began to show telltale signs.
The current signals are different but do show similarities to the 2018 pattern. It should be noted that both moves mentioned here were followed by a strong rebound in stocks as AAPL eventually went on to make new highs. However, if chart readers are looking for reasons to explain that feeling of nervousness they are experiencing, perhaps these charts help explain where they are coming from.  The Bottom Line Stocks sold off today in a way that might worry some chart readers. A close examination of the characteristics of AAPL stock, and a comparison to price action in recent history might provide useful insights. PODCAST ALERT! The Investopedia Express Investopedia's Editor in Chief, Caleb Silver digs into the most important stories in finance and global economics. On this week's podcast:
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Thursday, September 10, 2020
Exit Signs
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