Let me preface this write-up the way I preface most of my Apple (AAPL) write-ups: AAPL is a stock that I have traded very frequently throughout my career, mostly to the long-side. I have always felt very comfortable with my ability to forecast AAPL's price movements on an intermediate-term basis. The stock did show some faulty technical signals and signs of exhaustion after topping out above $700 per share in late September, but if you would have told me AAPL would be trading just north of $400 within six months, I would have laughed you off.
Good thing we are intermediate-term technical traders, though, because the signs of weakness have been there at every step of the way. First you had the head and shoulders top at highs, and then you have the more macro head and shoulders top that formed basically over the entirety of 2012. Back in December, in an extensive interview with the Wall Street Journal I talked about how the Apple's Halo Cracked, meaning that the psychology of the AAPL trade had been damaged, perhaps beyond repair.
In my 2013 predictions, I stated my opinion that a gap fill to $420, which is what we saw today, seems like a natural area for AAPL to test. A full measured move down from the head and shoulders top would take AAPL to around $300, but I think that target is somewhat unrealistic. While I largely defer to the charts, my brand of technical analysis includes a heavy dose of common sense, too.
The problem for AAPL right now is that growth investors are running for the exits, while the stock is not yet cheap enough to be compelling for value investors. I think a stock split could help repair the psychology of the AAPL trade and welcome in a new class of investors, but even more significantly I believe AAPL should do a major share buyback or special dividend to return some of its cash hoard to shareholders. But that is neither here nor there...
AAPL remains a weight on this market, and there are no signs yet that the stock is ready to stop the bleeding. It may take a new product launch or major cash-related announcement to wake it up. But no matter what your feelings are on Tim Cook or Apple products, always let the price action dictate your trading decisions.
*DISCLOSURES: Scott Redler is long MSFT, GS, F, FB, BAC, EBAY, ZNGA, WFC, NKE, WMT. Short SPY.