The selloff in Apple Inc.’s stock Friday was enough for chart watchers to refer to it as a breakdown, as it confirmed the break of a trendline that has defined the stock’s rally since the start of the year. One of the most recognized and agreed-with trading axioms on Wall Street is, “The trend is your friend.” An addendum to that axiom is only slightly less well known: The trend is your friend, “until it’s not.”
The easiest, if not the best way, to identify a trend is by drawing a trendline. Keep in mind that while two points can make a line, it takes a third point to confirm a trendline. And the more points on that line, the more valid the trend, and the more clear the breakdown. For Apple’s stock chart
there is a pretty well-defined uptrend line that starts at the stock’s 19-month intraday low hit on Jan. 3 and roughly connects with a number of lows along the way.
The technology behemoth’s stock slipped below that line earlier this week, ahead of Apple’s fiscal third-quarter earnings report out late Thursday. But it wasn’t quite enough to confirm the break of such a defined trend. One of the six tenets of the century-old Dow Theory of market analysis is that a trend is assumed to be in effect until it gives a definite signal that it has reversed. Also read: Don’t diss the Dow Theory just because it’s over 100 years old. With Apple’s stock down 3.6% in afternoon trading Friday after the report was released, the breakdown looks pretty definite. Don’t miss: Apple’s slowdown era rages on, and the iPhone may not be enough to power its stock. With that breakdown, Fairlead Strategies LLC technical analyst Katie Stockton said she is watching how the stock trades around the 50-day moving average, to see if that short-term trend tracker can provide support. The stock is currently trading slightly below the 50-DMA, which extends to just about $187 on Friday.
For Wall Street followers of …