If you are an Apple (NASDAQ: AAPL) bull, then the resumption of selling in the stock ahead of its earnings announcement this week can only be described as a gift.
Shares of Apple are down almost 10% from their most recent highs set in the first half of April. The orderly yet relentless selling of those highs has many pundits and analysts speculating that the source of the profit-taking are hedge funds and money managers that became overweight the stock during its ascent, especially over the last few months, who are now rebalancing their books by selling shares of AAPL.
To the extent that this is true, then the question in the long-run is how soon and with what force will these institutional buyers and sellers be back? In the short-term, however, it is clear that the stock has already retreated to levels where, historically speaking, traders and active investors have been more inclined to buy than sell.
Shares of Apple Inc. closed lower for three days in a row heading into Monday’s trading, during which the stock traded at breakeven levels, though managing to remain off session lows. Finishing just outside of technically oversold territory on Friday, Apple shares opened Monday morning with 7 out of 10 ratings, which put the stock just one ratings upgrade from our “consider buying” category. Note that AAPL did earn that intraday upgrade early in Monday’s session and is now set to open with “consider buying” ratings of 8 out of 10.
Whether or not to wait until after Apple’s earnings announcement before deciding to take any action with the stock is an individual decision for each trader and investor. But there is little doubt that even if the stock is sold on this week’s report, such selling at this point would only create more extremely oversold conditions than the stock already enjoys. And insofar as these oversold extremes continue to provide Apple with positive, short-term edges and ratings upgrades, the likelihood of Apple shares being higher over the short-term rather than lower remains statistically significant.
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David Penn is Editor in Chief of TradingMarkets.com