How to Trade Apple’s Negative Gap

Barclays Downgrade Takes Chunk Out of Apple

Apple's share price has started the New Year like a damp firework after Barclays downgraded the tech giant to "underweight". This downgrade was primarily triggered by disappointing iPhone 15 sales in China and the expected slowdown across various Apple product lines.

Anticipation looms around the upcoming iPhone 16 release later this year, with projections hinting at a modest update. Barclays also highlighted increased regulatory scrutiny which threatens to impact Apple's services business. Additionally, Apple have encountered obstacles related to patent disputes concerning its advanced Apple Watch models. However, the company managed to resume sales following a court ruling.

Apple Print Large Negative Gap

The unexpected Barclays downgrade caused Apple’s share price to print a large negative gap – where prices open and stay below the previous candle’s low.

This gap is significant for two reasons:

1. Confirms Failure at Highs: Apple’s share price went on a stellar run during the final quarter of 2023, taking prices from the volume-weighted average price (VWAP) anchored to the Jan 2023 lows (anchored VWAP 1) to retest all-time highs. Prices had stalled at the retest of the all-time highs and this week’s negative gap confirms the failure to break and hold above resistance.

2. Confirms Change in Short-Term Momentum: The gap has created a burst of bearish price momentum which has broken below swing support. This has opened the door for prices to potentially undergo a deeper pullback towards Anchored VWAP 1.

AAPL Daily Candle Chart 12-Month View

Past performance is not a reliable indicator of future results

AAPL Daily Candle Chart Zoomed View

Past performance is not a reliable indicator of future results

How to Trade Apple’s Negative Gap

Negative gaps create compelling trade setups as they signal a ‘shock’ to supply/demand dynamics of the market. Here are three possible price path scenarios which could lead to trade setups:

Scenario 1: Gap and Go

In this scenario we see prices continue lower in the coming sessions without consolidating or retracing. This scenario would favour using lower timeframes such as the hourly candle chart to time entry and manage a potential short position.

Scenario 2: Break and Retest

This scenario would see prices undergo a small pullback towards broken swing support – creating a potential opportunity to short the stock at favourable levels of risk/reward.

Scenario 3: Gap Close

Negative gaps have a tendency to provide resistance. Should prices rally high enough to close the gap, it could create a potential opportunity to short the stock at favourable levels of risk/reward.

AAPL Daily Candle Chart

Past performance is not a reliable indicator of future results

Risk Management

Apple has an Average True Range (ATR) of $2.95 – traders can use this as a baseline expectation for daily price movement and factor this into to stop placement and price targets.

On the economic calendar, Friday’s US nonfarm payrolls have the potential to increase the volatility of Apple’s share price.

Apple will release Q1 2024 earnings on Wednesday 31st January.

Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.

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