Schaeffer's Trading Floor Blog

Is Apple (NASDAQ:AAPL) Hitting a Euphoric High?

Schaeffer's Equities Analyst explains why you should take a cautious approach to AAPL

by 8/21/2012 11:45 AM
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Another day, another new record peak on Apple Inc. (NASDAQ:AAPL). Over the past three days, the equity has made a new all-time high. However, there are signs that this minor trend could be coming to a halt today.

After gapping significantly higher, shares of AAPL are currently trading near the lows of the day, with the broad market near the highs. Volume for the day is very heavy, with over 10 million shares trading before 11 a.m. ET.

It's also interesting to note how AAPL stalled at its upper Bollinger Band. Bollinger Bands are two standard deviation moves above and below the current market price. It is very unusual for an equity to remain above or below a band for a continued period of time. The fact that AAPL closed above it yesterday, gapped higher today, and is now near the lows of the session on heavy volume is very significant in my opinion. (Click on the chart below to enlarge).

Daily Chart of Apple (AAPL) Since February 2012 with Bollinger Bands
Chart courtesy of eSignal

AAPL's high for today is $674.88. A stock that trades extremely heavy volumes in the options market typically respects strike prices very well. The fact that it stopped 12 cents from an option strike is also noteworthy. Coincidentally, this 675 strike is also the site of the heaviest volume in August weekly options today.

Option volumes on the whole are through the roof today, with AAPL trading over 140,000 weekly call contracts before 11 a.m. ET. Looking at trends in option and stock volumes on AAPL the past few days, I would expect an extreme high on both today. Extreme volumes in both option and stock trades can often signify an extreme in price as well. Monitor these metrics closely.

Going forward, the 665 and 675 levels are critical short-term inflection points. It is very difficult to call tops in an asset with such strong price action and trend, but if you're so obliged, these two levels are key areas to watch as bailout points.

Lastly, another thing about AAPL that's extremely interesting is the company became the largest in history this week. This news was very publicized, even to the point that Kim Kardashian knew and tweeted about it. When something goes this mainstream, caveat emptor.

Kim Kardashian Tweets Apple (AAPL)

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