This Tuesday, January 26th, Apple Inc. is set to report earnings after the market close. Earnings are interesting to me in that they seem to be one of the reasons trader’s will use to abandon all logic and instead adopt a view based on personal conviction. Apple is a prime example of that with a fan base that borders on a cult-like following and investors that tend to do the same. One of the lessons you’ll learn as you progress through your trading career is that the market does not care what you think. I’m sure $AAPL appreciates having you(me) as a fan, but their stock is not going to go easy on you just because you’ve been buying their products for the past ten years. What I’m trying to say here is that if you’re going to be trading earnings, step away from the emotional side of it and instead look at things technically. It’s not to say this works perfectly either, but $AAPL does tend to be a very technical stock, and this is how I’ll be looking at it heading into tomorrow’s announcement.

We’re looking at a weekly chart in today’s example (primarily because we have a Squeeze that has fired short) but also because this chart has been playing out very clean technically. The first pattern we see is the head & shoulders that breaks down from the head at $134.54. This was the first sign of things to come for $AAPL, but let’s say you missed the breakdown. I’ve never been one to call tops, instead working patterns after their initial breakdown. After the break from the right shoulder, shares make a steep decline down into $92. The next rally is what I consider to be most important in this pattern, failing near $122. This pattern is important to me as the point value of the rally is very similar to the point value we saw during the advance to $134.54. (Shown in today’s image as A -> B = C -> D) In my mind this stock is telling me “This is how much I was able to rally before having a drastic decline, what’s to say this similar point advance is not preceding another decline?” We can see how far shares have fallen from that point, yet they still haven’t made the primary price target at $83.34.

Of course, anything can happen tomorrow afternoon, but I think there’s more downside in $AAPL and provided prices don’t close above $110 I’ll continue to maintain that directional opinion.

AAPL-chart


Catch more of Henry’s analysis at Simpler Options.