Trade of the Day: AAPL Stock a Big Risk to the Entire Stock Market

What a year 2019 has been for a handful of mega-cap U.S. tech stocks like Apple (NASDAQ:AAPL). AAPL stock rallied 85% for the year, with 35% of that from early October into year-end.

Source: mama_mia /

Through the lens of just about any metric I can come up with, this stock is now however historically overbought and a risky bet for investors looking to buy it. Furthermore, the stock now offers critical risk to the broader U.S. large-cap indices such as the S&P 500.

Before we continue, allow me be to be clear that this analysis is not to just troll against AAPL stock or anything related to Apple. For most of my life I have been and continue to be a loyal Apple product user. But as an investor and trader I must keep emotions at bay, which means being cautious if not outright bearish on a stock of a company I otherwise love.

AAPL Stock Charts

In the first half of October 2019 the Fed began its ‘non-QE’ operations again where it bought T-bills. This brought about a dramatic liquidity injection that basically saw the S&P 500 begin to rise almost 1% for every 1% the Fed expanded its balance sheet.

Passive investors like indexers and ETFs were forced to buy AAPL stock (among others of course), which in turn got the algorithms into full-on bull mode right into year end. This is to say that the rally in the fourth quarter in my eyes had little — if anything — to do with economic fundamentals, but rather was due to the structural bullishness emanating from the Fed liquidity bomb.

AAPL stock, which rallied another 10% in December alone, finished the year at a market cap of a little more than $1.30 Trillion (“trillion” with a capital T).

As a result the charts of this stock, in any time frame imaginable, are now vertical. They have gone completely parabolic and dramatically overbought.

Source: TradingView

Take the multi-year weekly chart for example. While I already thought AAPL was overbought in October, the stock has since completely blown out of its longer standing up trending channel (purple parallels), which also has its weekly MACD oscillator way off the charts overbought.

This is not the type of chart that gives me the warm and fuzzies to get bullish on.

Source: TradingView

On the daily chart we see how far AAPL stock currently is removed from its medium-term moving averages. Furthermore, the stock has once again reached the very upper end of a steep megaphone pattern.

What about the fundamentals of Apple, you ask? A good part of the bullish narrative of late has been that Apple is shifting from a hardware-focused company to more software and services. The company is indeed doing this, however iPhone sales still make up a major part of the company’s revenue just as global smartphone sales have topped a long time ago.

To me this sounds like an uphill battle to top the comps of recent past. Again, I say this not to be a bear or hater of any kind on Apple or its products, but rather as a trader and investor that is concerned with the parabolic rally the stock saw over the past three-to-four months.

Bottom Line on Apple Stock

Very simply put, I think AAPL at present is morbidly overbought and very near a significant mean-reversion move lower. Because of Apple’s size and broad holding in investor portfolios, the stock in my eye currently also poses risk to the broader stock market, particularly the S&P 500…at least in the near term.

Investors and traders could look to either take profits in any AAPL stock they own, or attempt outright bearish bets. One could either short AAPL stock outright or buy 290 strike puts or 290-270 bear put spreads using March options.

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