Apple: Trap door or time to bottom-fish?

The tech giant was among the stocks taking a beating in Wednesday's market rout, which pushed the iPhone-maker's shares to a fresh 52-week low.

By Forbes Digital Apr 17, 2013 3:17PM
copyright Datacraft Co Ltd, imagenavi, Getty ImagesBy Steve Schaefer

Apple (AAPL) stock took a beating Wednesday, dipping below $400 for the first time since December 2011. But does the 5.3% drop mean the company is finding a floor before next week's earnings and poised to run higher?

Auerbach Grayson's Richard Ross doesn't think so. The technical strategist sees a "magnet effect" from the 200-week moving average at the $372 level, a level that would mark about a 50% unwind of the stock's incredible rally from its 2009 lows to its September 2012 peak at $705.07 a share.

"What can I say? It's a pervasive downtrend," says Ross. "Regardless of the name or ticker, we don't advise clients to catch falling knives," and with earnings due April 23 he is resisting the urge to put on his contrarian hat  just yet, especially considering Apple's long slide has come in the midst of a broader market rally.

A washout below the 200-week average, which in the $370 to $372 area is less than 10% below current levels, could mark an opportunity, says Ross, who accurately predicted the stock had more room to fall in October (Forbes) and warned investors not to trust any holiday pop (Forbes).

Ross also notes that while the damage has been substantial in Apple, there are still many investors who bought two or more years ago and remain in positive territory. Another factor: a measly short interest.

With only 2% of shares sold short, there is not much of a chance the stock rips higher on a short squeeze the way smaller names like and have in recent months. Instead, Ross calls the current Apple situation "a long squeeze," and he's on the sidelines for now.

It's not just the charts that are provoking concerns about Apple. After Cirrus Logic (CRUS) issued weaker-than-anticipated revenue guidance Tuesday, RBC analyst Amit Daryanani warned of a negative impact on Apple's June quarter. (Cirrus provides audio codec devices for Apple and has major exposure to its products.)

Cirrus did point out siginificant inventory reserves, Daryanani noted, which could herald new product lines coming this summer, but any negative surprises in either Apple's quarterly results or its outlook are unlikely to be greeted warmly by an ornery market.

"Until this stock can show me something, there's no reason to be a hero," Ross says.

After falling as low as $398.11, shares of Apple were down $23.08, or 5.4%, at $403.16, in afternoon trading.

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