Chart of the week: is it heresy to short Apple shares here?

7th February 2022 12:53

It has been one of those ‘never sell’ stocks, but technical analyst John Burford Is not so sure now. Here’s what he thinks of the current chart set-up.

Last week, Apple (NASDAQ:AAPL) announced its Q4 business services sector earnings grew to a record $78 billion annualised and would continue to grow this year at double-digit rates. The gadget sector was about flat.

As experienced traders/investors well know, with success comes extravagant forecasts – and often well over the top. Anyone who has kept a ruler from school can draw in bullish forecasts. There is little skill in that.

But when the figures were announced, the share price did not perform the usual knee-jerk surge, but declined instead. To a trader, that was a 'Hmm' moment and could mean one very real possibility – that the share price had already baked in the good news.

If so, logic suggests that to keep the bull expectations alive, no nasty surprises can be contemplated.

In the bigger picture, I have been laying out my case for months now that the market-leading FAANG Gang was vulnerable to corrections – and perhaps something worse. Remember, they were considered the 'never sell' group last year.

After all, a not-so-perfect scenario for Meta (NASDAQ:FB)/Facebook and Netflix (NASDAQ:NFLX) earlier had produced very rapid re-ratings for both with Meta off 40% and Netflix off 50% from their all-time highs, not to mention the 'untouchable' Amazon (NASDAQ:AMZN), which is off 26%.

That carnage has the tech bulls very worried – with panic in some quarters.

As I mentioned at the time, I wondered if the Facebook name-change to Meta in late October had been a result of the all-time high just a few weeks earlier. Many were puzzled by that change, which suggested desperation to focus away from the troubled social media platform.

The two holdouts in the FAANG Gang (or should it now be named the MAAAN Gang?) are Apple and Alphabet (NASDAQ:GOOGL). As we have seen with Amazon, even Teflon companies can become less shiny.

Here is the two-hour chart that tells me Apple shares are at an important juncture:

Past performance is not a guide to future performance.

Last week, the shares rallied to the Fibonacci 76% retrace off the $184 all-time high on 4 January and is now testing that level. If my wave labels are correct, the shares are on the verge of a strong move lower. Only a surge above the wave 2 high at $176 would send me back to the drawing board.

I am staying with my belief that taking profits here is a very prudent move. Traders will be looking to short the shares.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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