Category Archives: Dow Theory Line

On May 8, 2013, Apple (AAPL) reached as high as $463.84 on a closing basis.  Since that time, Apple has been in a declining trend.  The failure of Apple to materially exceed the previous intermediate peak of $463.58 could indicate that there is significant downside risk. 

For now we believe that Apple has established a “line” where either accumulation or distribution of the stock is taking place.  The failure to exceed the $463.58 indicates, for now, that the next technical test is at the $420 level.

One of the primary issues with the current run from the April 2013 low is the fact that trading volume has been in a declining trend.  Declining volume with a rising price is a very unhealthy situation.  Typically, falling volume in the face of a rising price is resolved with rising volume and a declining price.  In the chart below, the last two instances of rising trading volume resulted in exceptional price declines.  (Keep in mind that these rising volume occurrences have taken place within a –50% decline in average trading volume since the bull market began March 2009.)

We’d be cautious about the prospects for Apple in light of the fact that the stock appears to be on the cusp of a rising trend in the trading volume which happens to coincide with a declining price.  A decline below $384 would mean that Apple could decline to our extreme downside target.