Apple Inc. (AAPL) Stares Down Longest Losing Streak in Decades

A gain today would help Apple Inc. (AAPL) avoid a ninth consecutive daily loss

Alex Eppstein
May 3, 2016 at 11:18 AM
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Apple Inc. (NASDAQ:AAPL) is up 0.7% at $94.26, as the tech stock tries to put an end to its epic losing streak, currently at eight days. Historically speaking, this represents the stock's worst stretch since the dot-com era. Scarier yet, a loss today would mark AAPL's longest losing streak since 1991 -- though CEO Tim Cook seems more optimistic than ever. Amid the sell-off, the stock's 14-day Relative Strength Index (RSI) closed last night in oversold territory at 21, while options traders have been buying puts at an accelerated rate.

Looking more closely, AAPL options traders have bought to open 0.70 puts for each call during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). While the corresponding put/call volume ratio remains call-skewed on an absolute basis, it ranks in the high 80th annual percentile -- pointing to a healthier-than-usual appetite for bearish bets over bullish.

Now is an opportune time to purchase premium on short-term AAPL options. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 27% ranks in the bottom quartile of its annual range. In other words, the options market is pricing in relatively low volatility expectations for AAPL's near-term strikes. What's more, AAPL's 30-day put/call implied volatility skew of 7.3% ranks in the 12th annual percentile, suggesting short-term puts have rarely been cheaper than calls in the prior year, on account of heightened demand for the latter.

This demand for calls may be surprising, given AAPL's technical struggles -- and the fact the stock is currently at a crucial juncture on the charts. Specifically, the shares are testing a key level in the $92-$93 area, which acted as support during an early 2016 sell-off. This area also coincides with AAPL's late-August annual low, and its 200-week moving average, which hasn't been breached on a weekly basis since March 2009.

Suffice it to say, Apple Inc. (NASDAQ:AAPL) could be vulnerable to even greater downside, should it dip below the $92-$93 zone. While sentiment in the options pits has grown more skeptical in response to these technical woes, the brokerage crowd remains steadfastly bullish, with 83% rating the stock a "buy" or better. From a contrarian perspective, a capitulation among these holdouts in the form of future downgrades could apply additional pressure to AAPL stock.

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