Should You Buy the Apple Gap Lower?

Schaeffer's Investment Research
  SEP 11, 2013 3:25 PM

AAPL may be gapping lower today, but it may not be wise to step in front of it just yet.


Apple (NASDAQ:AAPL) gapped lower by more than 5% this morning on disappointment over the pricing of its new iPhone and no China Mobile (NYSE:CHL) deal.  What is important to realize is that, coming into this very well-publicized event, we saw a big surge in call buying, which set a high bar, as I discussed with Reuters.  This makes the odds of a big drop on any slight disappointment high, exactly what we’re seeing today.

Getting to the chart of AAPL, it peaked right around a 38.2% retracement of its all-time high.  This is a common retracement level and one that I noted could be strong resistance.

So there was too much hoopla ahead of the event, a technical area of resistance, and now a big gap down – what do you do?

Looking at data since 2000, this is the 16th biggest gap lower – checking in at -5.59%.

There have been 23 gaps lower of more than 5%, and looking at the returns of those gaps, it does seem like buying the opening gap is wise.  In fact, it is up 1.06% the rest of the day.  Yet, that strength looks to be short-lived, as a week later the shares are down another 4.28% and up just 35% of the time.  A month later it doesn’t bounce much either, down 3.80%, but up 48% of the time.

All in all, AAPL might be gapping lower today, but I don’t think you should step in front of it just yet.  It very well could continue to drop in the near-term.

This article by Ryan Detrick was originally published on Schaeffer's Investment Research.

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