Chart of the week: is Apple falling from the tree?

A 'buying climax' may have happened at the tech giant, and this technical analyst has major doubts. He also has an update on other FAANG stocks and market moves on Monday.

With the new Omicron Covid-19 variant suddenly casting a dark-ish spectre over markets, I am making a case again that this most popular of shares has made a major long-term top and is trending lower. 

Taking profits in Apple (NASDAQ:AAPL) is a prudent strategy, I believe, as I suggested earlier in my COTW of 20 September.

Of course, making such a prediction on the famous company that produces such well-loved consumer electronic products as Apple is fraught. And it has been a very profitable holding for many early investors. But, like the Christmas turkey, I am sticking my neck well and truly out.

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I made my first bearish/neutral case for Apple shares in my COTW of 20 September, when the shares were trading around the $150 area and had just made a very accurate hit on a major target of resistance. This was the chart I showed then:

Past performance is not a guide to future performance.

Since markets are always full of surprises, the shares have been teasing the bears and rallied a little further, making a high of $166 on 22 November as it posted record revenue for Q4 in September.

But that enthusiasm didn't last long as the shares rapidly reversed course off the high and has made a textbook example of what I call a 'buying climax' in the form of an 'overshoot'. This is when the market, after a lengthy bull trend, briefly pokes above a major line of resistance and rapidly moves back down below it. It is as if it wakes up and suddenly realises it shouldn't be there! 

Here is the chart updated to the Friday close:

Past performance is not a guide to future performance.

It managed to poke above my upper major trendline of resistance and closed last week on a 'key reversal', which often appears at the end of a major run. Not only that, but the $166 high was set on a strong momentum divergence that continued my weak rally theme from September. That divergence should ensure the decline will be rapid.

Only a strong move above the $166 high would send me back to the drawing board.

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The FAANG Gang

Apple is a member of what I call the FAANG Gang (Facebook/Meta (NASDAQ:FB), Apple, Netflix (NASDAQ:NFLX) and Google/Alphabet (NASDAQ:GOOGL)) which are the mega-cap tech leaders of US stock markets along with Amazon (NASDAQ:AMZN). For years, they have attracted the vast majority of investor interest as they are seen as actually benefiting from the pandemic lockdowns - and profit margins are huge.

Here is an interesting chart of the group:

Past performance is not a guide to future performance.

It made its high on 12 November and is currently down 5% and is testing the major shelf of support. A sharp break of that would likely send it down to the next level of support at the 7,420 region (currently 7,620). That would imply a move in Apple down to $150.

Update Monday morning

Markets are rebounding strongly as first indications seem to imply that disruptions caused by the new variant will be less severe than last time during the corona crash.

Several global indexes including the FTSE 100 have made a Fibonacci 50% correction over the weekend to last week's plunge. That is impressive and typical in this market that has become highly emotional. Many large swings will now be driven by the reaction to rolling Omicron (and Delta) news.

It is interesting that this morning, as the Dow is up 600 points, London Stock Exchange holiday shares TUI (LSE:TUI) and easyJet (LSE:EZJ) have barely moved off their Friday lows. It seems they are not buying the same story as US investors. Hmm.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.