Early on Friday, February 6th, Apple’s 20 day exponential moving average (EMA) moved below it’s 100 day EMA, setting up a flurry of selling that ended with Apple down over 2.6 percent for the day. Compare this to the Dow Jones Industrial Average—which Apple is a part of—which was down only 1.29 percent. Apple has struggled, and Friday was one of their roughest days, thanks to the fact that the bad news keeps piling on for them.
Apple has had a rough 2016. They lost their ranking as the largest company in the world, they have seen iPhone sales drop dramatically, they posted their first decrease in earnings in over a decade, and they have lost customer satisfaction levels. The latest blow to Apple is that they lost a patent case to VirnetX. Apple is filing for a mistrial, but if the decision stands, Apple will owe the company $625 million. This has been going on since 2012, when an original ruling was made, but the case has reached yet another milestone. This is an ongoing matter, of course, but it is definitely not a good thing for Apple right now.
With all of this negative press going against Apple, it was only a matter of time before the short term trend as exemplified by the 20 day EMA dropped lower than the 100 day EMA. Many traders use this information to help determine trend, and if this is the main measurement used, Apple is officially in a downtrend. It will become a bear trend if it last for a prolonged period of time. Many experts look at two weeks as the rule of thumb here, but this is arbitrary at best. Still, Apple is seeing prices drop in a substantial way. Traders need to acknowledge this.
The question that long term investors should be asking when it comes to Apple is whether or not this is a company that can rebound from these strikes against it. Warren Buffet, the most famous investor in the world, is credited with using a very simple test to answer this question: is this company going to be around in 10 years? If so, then they are likely to grow. If the answer is questionable, then growth is also questionable. Apple is going to be here in ten years, so if we use the Buffet test, then Apple is a safe long term investment. And at their bargain basement pricing right now, it’s never been a better time to buy Apple stock.
Short term trading is a completely different story, though. The above mentioned technical information is helpful, but it is large scale and long term investing. Position traders and swing traders may find it helpful, too, but if you are a day trader, either in binary options or the traditional stock market, this data is going to be completely meaningless to you. However, short term day traders can change the EMA parameters so that they are more indicative of what you are looking at. For example, if you are looking at day trading, you can set the parameters so that they reflect the same thing proportionally, but for much shorter timeframes. Over the course of Friday’s trading session, you can look back at Apple’s stock, set the EMA numbers for 5 and 25 days, maintaining that 1:5 proportion, and see that the lines cross in few points, setting off buy and sell points over the course of just a single day. Any type of day trader can use this method to give them an easy way of evaluating trend and making more informed decisions.