Tech stocks were hit with selling pressure to start the year, but many are still in long-term trends and some are nearing support-reversal zones. In particular, Apple (AAPL) fell to a support-reversal zone and I am on alert for a bounce. Let’s investigate.
First, the long-term trend is up because APPL broke out of a falling wedge in early October and hit a 52-week high in mid December. The stock fell from these highs and is currently trading in a support zone. A classic tenet of technical analysis is that broken resistance turns support. The wedge line and October high mark resistance. Strengthening demand (buying pressure) produces the breakout and breakout zones become future support because of residual demand (blue shading).
Chartists can use retracements to identify potential reversal zones. The current decline retraced 50-61.8 percent of the prior advance (late October to mid December). Charles Dow suggested that counter-trend moves typically retrace one to two thirds of the prior move with fifty percent representing the base case. Think of this as two steps forward and one step backward. APPL is in a retracement zone that could lead to a short-term reversal.
Apple is also short-term oversold and this increases the odds for a bounce. The indicator window shows the Momentum Composite, which is part of the TIP Indicator Edge Plugin for StockCharts ACP. This indicator aggregates signals in five momentum oscillators and it reached -5. This means all five indicators are oversold. I consider the indicator oversold when it hits -3 or lower (blue line).
Apple is oversold and trading in a support-reversal zone. All we need now is a short-term upside catalyst. Chartists can use intraday charts or candlesticks to time a short-term reversal. We can also use an indicator that measures the momentum of momentum.
StochRSI is the Stochastic Oscillator applied to RSI. This is basically a momentum indicator applied to another momentum indicator. The idea is to find a short-term pop in momentum that could signal a short-term reversal. StochRSI (10) ranges from zero to one. After the Momentum Composite becomes oversold, look for StochRSI to surge above .80 for a short-term signal. It is important to wait for a catalyst because stocks can become oversold and remain oversold for a few weeks.
The chart above shows when StochRSI surged above .80 after the Momentum Composite was at -3 or lower (green lines). There were signals in late December 2022 and early January 2023. After a long drought, there was a signal in mid August and a very timely signal in early November. APPL is on my watch list for a short-term upward catalyst.