Volume in Apple (AAPL) a Red Flag

09/11/2009 12:01 am EST

Focus: STOCKS

Corey Rosenbloom

Founder and President, Afraid to Trade

A MoneyShow.com reader asked me to take a look at Apple (AAPL), and I had to highlight the weekly time frame volume divergence that has been developing off the price lows all through the current strong rally. 

Let’s take a quick look at AAPL’s weekly and daily stock charts.

Apple (AAPL) Weekly:


Click to Enlarge

The main thing that leaps off the chart at me is the major volume non-confirmation or divergence that has formed since the October 2008 lows (volume spike). Technically, the volume non-confirmation did not begin until April, though look closely through July and August as price rose sharply—volume trailed off slightly each successive week.

Volume divergences (when price rises on lower volume) are non-confirmations, but they don’t cause us to run for the exits or jump in short. It’s just like a yellow light that signals caution instead of imminent danger, but it’s something that Apple (AAPL) bulls should at least be aware of.

Otherwise, there is no major level of resistance above, save for the prior price highs at the $180 and $190 level. Price is above the 61.8% Fibonacci zone, which often serves as some sort of resistance.

Otherwise, look to weekly EMAs at $150 and $140 for any potential test of a support zone.

Apple (AAPL) Daily:


Click to Enlarge

The daily chart steps us into the recent price action, which shows that a negative momentum divergence has formed along with the negative volume divergence as described.

What’s concerning me (from the bullish camp) on this chart is the volume spike that has formed on the current bar (with one hour to go in the day’s trading, so that bar isn’t yet complete). Price is down 1.33% on volume not seen since mid-July—that’s not bullish.

For short-term scalps, I’d look to see if the 20-day EMA held support at $166, and if not, then look to scalp for a possible play to test $160.

A failure beneath $160 could set up a challenge of the $150 level as mentioned on the weekly chart.

Barring any downside momentum/movement here, we would expect the 20-period EMA to hold (support) price as it has done in the past, but be on alert that the strength of the 20 to hold price could be weakening.

By Corey Rosenbloom of AfraidToTrade.com

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