PreMarket Prep Stock Of The Day: Apple

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

After last Thursday’s weakness in Apple Inc. AAPL and Friday’s reversal off its early morning low, listeners of the PreMarket Prep Show wanted to know if they missed their chance to buy the dip.

As a result, the issue was covered in detail ahead of its third-quarter earnings report on Thursday, making it today's PreMarket Prep Stock Of The Day.

Quite The Rally Of March Low: After retreating from its all-time high in January ($327.85), it cratered to $212.61 in March and rebounded with a vengeance. That low came in a few points below its October 2019 low ($215.31).

What it has done over the last few months has been nothing short of spectacular. Last week it rallied to $397, marking an 87% gain off the low. That's the best performance over a four-month span in the history of the issue.

Profit-Taking In The Tech Sector: Following the major rally in the tech sector, some investors were looking for a catalyst to take some profits, especially in issues that had yet to report. As it turns out, Microsoft Corporation MSFT provided that catalyst, when the issue sold off hard after its quarterly earnings beat.

Last Thursday, Microsoft fell from its previous day close of $211.75 to $202.54. It continued lower on Friday to $197.51, but has since rebounded back over $200.

On that same day, Apple fell from $389.09 to $371.38. Similarly, it bottomed early Friday morning at $356.58, and has rebounded back to the $375 area.

Price Action During The Show: When the issue was being discussed at the top of the show, it was changing hands in the $375 area. Co-host Dennis Dick classified the price action as a classic two-day shake-out, with follow through on the downside on the second day and then a rebound.

With the issue now $20 higher than Thursday’s low, he was cautious going long the issue at this area: "If you are trying to buy the dip now, you are doing it backwards," he said.

He went on to explain a few different ways on how to attack Apple on Friday, if one was so inclined to employ the “buy the dip” strategy.

Reason For Caution: With the issue so far off Friday’s low, that level was too far down to lean on for a day or even a swing trade. If one was to buy hares of Apple at $375 and risk down to Friday’s low, a 2:1 risk-reward ratio would call for a $410 price target, which would be 13 points over its current all-time high.

More importantly, after such a sharp decline, investors who tried to buy the dip too early would be looking to mitigate their losses. Also, one key technical level that is part of a barebones technical toolbox is the 50% retracement of a major move. For Apple, halfway back on the decline from $397 to $356.58 comes in at $376.74, an area Dick thinks may attract sellers.

Current Price Action: After a higher open, Apple continued in that direction rally to $379.50 and reversed course. That high comes in well above Friday’s high ($371.88), but well shy of last Thursday’s high of $388.31.

Since reaching that intraday high, it retreated and is trading between $376-$378 on Monday afternoon. Bulls and bears are squaring off at the key technical level of $376.74 ahead of Thursday's report.

The entire discussion on the issue from today’s show can be found here: