New Bearish Technical Signal In Apple's Chart

Apple Inc AAPL shareholders were disappointed on Tuesday when Apple’s stock fell nearly two percent after the company released record earnings Monday afternoon. The market’s response to the earnings beat may simply have been a case of unreasonably high expectations for the world’s largest company.

Whatever the reason for the decline, Apple shareholders now have a brand new technical reason to worry after Tuesday’s trading session.

Bearish engulfing
Not only was Tuesday’s trading action negative for Apple, the stock formed a textbook bearish trading pattern in its daily chart: the bearish engulfing pattern.

A bearish engulfing pattern is formed when a small white candlestick in a stock chart is followed by a large black (or red) candlestick that completely engulfs the previous day’s candle.

Apple formed the bearish engulfing pattern on Tuesday after the stock opened at all-time highs but then closed below Monday’s low of the day.

What does it mean?
According to Investopedia, “this type of pattern usually accompanies an uptrend in a security, possibly signaling a peak or slowdown in its advancement.” Often times, a bearish engulfing signal in a stock that had previously been in a strong uptrend signals either a reversal or a pullback ahead.

Should Apple shareholders be dumping?
Traders looking to make a quick buck off of Apple’s earnings report have good reason to be concerned over the bearish engulfing pattern. However, any long-term investor in Apple should relax and enjoy the stellar performance of the company.

Even if the signal results in a healthy technical pullback in Apple’s stock in the short-term, the fundamentals of the company will be the ultimate driver of price action in the long-term. And of course, like any other technical analysis indicator, the bearish engulfing pattern is far from a guarantee.