These two charts show why one trader is betting against Apple
As big technology stocks like Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) logged two straight days of declines and technology lagged as the worst-performing sector, one trader is betting on further downside for the stock that's had the largest negative effect on the market: Apple.
The largest component in both the S&P 500 (INDEX: .SPX) and the Nasdaq 100 (NASDAQ: .NDX), Apple fell by more than 6 percent from Thursday's close to Monday's close. That drop took the stock as low as $142.51, after hitting a high of $156.65 in the middle of May.
To gauge how much further Apple could fall, one can examine the tech giant's price movement relative to the QQQ, a popular exchange-traded fund that tracks the tech-heavy Nasdaq 100 index, said TradingAnalysis.com founder Todd Gordon.
"Apple has struggled up around the $156 to $157 resistance levels. It's made a 'double top' over the last two months," Gordon said Monday on CNBC's "Trading Nation."
While Apple has appeared to hit resistance in that region, the QQQ (NASDAQ: QQQ) has continued to make "higher highs," indicating to Gordon that the stock is a relative underperformer in what has been an up-trending group.
"Now, while the uptrend is in question, we'd expect the underperformers — Apple — to lead on the downside despite the heavy action in the [semiconductors] right now," Gordon said.
Turning to a chart of Apple itself, Gordon pointed to a line of resistance along the "tops" the stock has made dating back to last fall, from about $120 per share, up to north of $150 per share. Drawing a parallel line of resistance along the stock's low points, thus creating a sort of channel tracking the stock's activity and highlighting the recent angular move down, Gordon determined that "Apple will have a key test of support right around the $140 mark."
"Now, it's possible that Apple holds that support level and continues on its merry way. Or else, if we break through $140, that could be a greater issue and this tech sell-off could extend further," he added.
Falling along with its tech compatriots on Friday, Apple was under continued pressure on Monday after Mizuho Securities research analyst Abhey Lamba downgraded the stock late Sunday. Lamba cut his rating to neutral from buy, and lowered his price target on the $145 stock to $150 from $160 per share.
"The stock has meaningfully outperformed on a YTD basis and we believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside to estimates from here on out," Lamba wrote.
To capitalize on what Gordon sees as a likely move down to the $140 mark, he looks to the options market to buy the July 7 weekly 145-strike puts, and sell the July 7 weekly 140-strike puts, for a total cost of $1.86, or $186 per options contract.
If Apple shares were to close above $145 on July 7 expiration, Gordon would lose the premium of $186 he paid for the trade. However, if Apple shares close at or below $140 on July 7 expiration, Gordon would make a maximum profit of $316. The trade breaks even at $143.14.
If the trade starts to work against him, Gordon plans to use a "50 percent give-back rule."
"If the premium paid gets down about 90 cents, that's going to be half the premium loss," he said, which would lead him to pull out of the trade amid an uptrend that's still intact.
"Otherwise, that key test of $140 is what we're shooting for."
More From CNBC
