Apple’s high volume plunge yesterday may very well have scared the living daylights out of all fanboys and retail holders alike. The stock was down nearly 6.5% and could have easily been presaging another leg down in its correction since late-September’s all-time highs. On its face, the action was terrible for bulls. The 50-day moving average is clearly declining, many Apple loyalists view the stock as a sure thing to go to $1000 imminently, and the longer-term timeframes indicate a potentially massive head and shoulders top in the making.
And yet, the 200-day moving average is still inclining, giving bulls the benefit of the doubt that this is a mere bull correction until proven otherwise. Furthermore, the mid-November price lows have not been breached. When you have an aggressive downside move that scares everyone after an established correction, it begs the question of whether we have just witnessed a major higher low and this a buying opportunity.
Turning to the updated daily timeframe, one indicator to observe here is the MACD cross (bottom pane on chart below). Note how the MACD (Moving Average Convergence/Divergence–A simple momentum/trend following tool) crossed back up over the “signal line” for a bullish cross after the November lows. Since then, the sell-off yesterday saw a backtest of that bullish cross. All of which is completely normal.
The issue now becomes where this backtest holds and bulls arrive to support the higher low thesis. I would key off the MACD here on Apple’s daily chart to see if it proves true. A bearish cross back down would seriously negate that thesis.