Apple Inc AAPL 0.28% shareholders were disappointed on Tuesday when Apple’s stock fell nearly 2 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.
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 may want to just 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. Like any other technical analysis indicator, the bearish engulfing pattern is far from a guarantee.
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