Apple Inc AAPL and Amazon.com, Inc. AMZN were trading about 1% and 1.7% lower, respectively, on Thursday in continued bearish price action following the Federal Reserve’s decision on Wednesday to hike interest rates by .75%.
The two big-tech stocks have been trading in downtrends since Aug. 16, when the SPDR S&P 500 attempted to regain the 200-day simple moving average and failed.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify a downtrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend.
Descending longer-term moving averages (such as the 200-day simple moving average) indicate a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend, the “trend is your friend” until it’s not and there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.
There are a variety of tools one can use for technical analysis, including Ninja Trader. Ninja offers advanced charting and other products as part of its trading suite that is designed to assist investors with navigating the markets. The platform allows its members to automate and execute trades and to test trading ideas through simulation.
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The Apple Chart: Apple’s most recent lower high was formed on Wednesday at $158.74 and the most recent confirmed lower low was printed at the $148.37 mark on Sept. 16. On Thursday, Apple was working to print a doji candlestick above the most recent lower low, which could indicate a bounce will come on Friday.
- If that happens, the downtrend will be negated by the formation of a higher low. Apple may then go on to form a tightening triangle pattern on the daily chart.
- Apple has resistance above at $153.92 and $158.09 and support below at $150 and $146.41.
The Amazon Chart: Like Apple, Amazon was working to print a doji candlestick on Thursday, which may indicate the next lower low in the stock’s downtrend has occurred and a bounce will take place on Friday. Amazon’s most recent lower high was printed on Sept. 19 at $124.71 and the most recent confirmed lower low was formed at the $120.70 mark the day prior.
- Amazon is likely to bounce sooner rather than later because the stock’s relative strength index (RSI) is nearing oversold territory, measuring in at about 33%. When a stock’s RSI nears or reaches the 30% level, it can be a buy signal for technical traders.
- Amazon has resistance above at $117.16 and $122.24 and support below at $109.30 and near the $100 mark.
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