Apple Inc (AAPL) and Netflix Inc (NFLX) incurred fresh technical damage in the post-Brexit downdraft and now risk entering active downtrends. This risk will grow exponentially if broad averages fail to bounce strongly near current levels and continue their downward trajectories toward Q1 lows. Market players should watch those levels closely because breakdowns may trigger high volume selling pressure throughout the big tech universe while offering profitable short sales.
The Nasdaq-100 fell more than 7% in two sessions after the referendum, ending hopeful recovery rallies in many widely held growth stocks. This instrument has lagged the SP-500 badly throughout the month of June, failing to reach the 3-month high when the SP-500 hit a 10-month high. This bearish divergence may now generate downside momentum that triggers major downtrends in many big tech components.
AAPL Short-Term Chart (2014 - 2016)
AAPL stalled at 134 in February 2015 after an historic uptrend, entering a topping pattern that tested the high in April and sold off. Additional breakout attempts in June and July failed as well, yielding an August breakdown that generated three selling waves into the May low at 90. The stock bounced into June but ran out of gas when it reached the April 27th post-earnings gap between 98 and 105.
The stock hovered at the bottom of the gap for 2 weeks and sold off, descending to the low of the August mini flash crash in Monday’s session. This support level was remounted during the May bounce so its urgent the decline end right here in order to spawn a second bounce. Meanwhile, three reversals at 200-day EMA resistance and the June reversal at 50-day EMA resistance predict an eventual breakdown through remaining support levels.
On Balance Volume (OBV) bounced off a downtrend low in May but topped out on June 10th while the stock was struggling to lift back into triple digits. It’s ticked much lower since that time and has now reached a multiyear low, signaling a bearish divergence that predicts lower prices will follow in coming weeks. The proximity to 2nd quarter earnings on July 26th could delay the breakdown, which is likely to be confirmed after a poor received report.
NFLX Short-Term Chart (2014 - 2016)
NFLX led the market in 2015 as a proud member of the FANG quartet of big tech stocks. A long uptrend stalled in August just above 129, yielding volatile sideways action, followed by a December breakout attempt that stalled just 4-points above the 3rd quarter high. The stock sold off into February, breaking support at the low of the August mini flash crash, and then bounced strongly into resistance at the 50- and 200-day EMAs in March and April.
That test failed after a mid-April gap while a second test earlier this month also ran into aggressive selling pressure. The current decline has settled at the May swing low near 85, which also marks the August low. A breakdown will target the 1st quarter low at 80 and the lower lows trendline (blue line), now situated near 75. On the flip side, a new uptrend will require a rally above the red trendline of lower highs, currently situated just below 100.
OBV has dropped to the same level as the November 2014 and May 2016 lows, pointing to major distribution consistent with an active downtrend. However, the broad pattern has now resolved into a falling wedge that often yields a new uptrend rather than a downtrend. This configuration will get tested after the stock touches the blue trendline, which will happen at the same time it retests the .618 Fibonacci retracement of the 2014 to 2015 rally wave.
The Bottom Line
Apple and Netflix have sold off once again, signaling the end of recovery waves that could mark last stands, ahead of major breakdowns. Both stocks are now headed toward deep support levels that, if broken, will signal declines that may last for several years. At this point, NFLX shows higher odds for a 9th inning save than AAPL, which has now been under major distribution for the last 14-months.