DELAFIELD, Wis. (Stockpickr) -- Calling all value investors, your beloved Apple (AAPL) is in trouble technically here. Big trouble.
By now, everyone knows the bullish case for shares of the iPhone and iPad maker. The company has over $160 billion in cash on its balance sheet and trades at a very cheap valuation at just 12 times trailing price-to-earnings and 11 times forward price-to-earnings. Apple is rumored to be set to release its new iPhone 6 later this year, and a new product, possibly the iWatch, is on the docket for later this year. Those attractive fundamentals just don't matter right now, since shares of AAPL are breaking down big time from a technical standpoint.
I know that's hard to stomach for fundamental investors who are in love with Apple. They don't want to believe that such a cheap stock with so much cash for acquisitions and dividend increases can be in trouble here. But supply and demand is what moves stocks, and those dynamics can be driven by a variety of reasons.
One reason is the technical shape of a stock. Technicals are often a leading indicator to the future fundamentals of a company. What I mean is that the way a stock acts technically often front runs the coming fundamental news. Could it be possible that AAPL has some fundamental news on the horizon that the market isn't going to like? If you're not considering this, then you're just ignoring how bad AAPL is acting from a technical standpoint right now. Apple is due to report earnings on April 23 after the market close. Considering how shares of AAPL are acting right now, I would say it's a strong possibility that somebody knows the company is going to report a weak quarter.
If you take a look at the chart for Apple, you'll notice that this stock formed a double top in late March at $551 to $549 a share. Following that top, shares of AAPL have started to trend lower with the stock recently breaking below its 50-day moving average. That was the first warning sign from a technical standpoint that shares of AAPL were in trouble. After breaking its 50-day, AAPL tried to rally a few times back above that key technical level, but each rally has failed and the stock is now trending well below its 50-day. Shares of APPL then broke another key technical support level at $523 a share and the stock has continued to slide lower.
During the entire slide lower from the double top set in March, shares of AAPL have been consistently making lower highs and lower lows, which is bearish technical price action. This shows that as of right now the bears are in full control of AAPL and any short-term rally is being sold into as the stock continues to slide lower. This is not a great time to be attempting to pick a bottom in shares of AAPL, since the stock is literally showing not a single sign that the bulls are willing to defend the stock.
Another major problem for shares of AAPL here is that the stock is now breaking another major support level at $515.60 a share on an intraday basis. Shares of AAPL have touched an intraday low today of $511.72 a share. As you can see, this stock has sliced below that February support level at $515.60 a share with conviction. A close below that $515.60 today would not be a good sign from a technical perspective for shares of AAPL and would likely be signaling that much more downside is on the way.
How much more downside could be in store for AAPL? I would suggest that at the very minimum, shares of AAPL are setting up to re-test its 200-day moving average of $505.43 a share. All trends point to that happening very quickly if AAPL closed below $515.60 a share today. If AAPL's 200-day gets broken with heavy volume, then this stock looks destined to re-test its next major support levels at $490 a share to $475 to $450 a share. Do not take those targets lightly, they could very well be tested or even broken if AAPL reports a weak quarter next week.
The bottom line: AAPL is not in the control of the bulls and shares look likely to trend much lower in the near-term and possibly after its earnings report. If you're savvy enough and inclined, shorting AAPL is the right side of the trade right now. If you're bullish on AAPL and looking for an entry point, then it's best to step aside and wait for the stock find support and trend sideways for a bit. There should be no rush to catch the falling knife that is Apple's stock right now. Wait for better days ahead, or short if you know how to do that.
-- Written by Roberto Pedone in Delafield, Wis.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.