Trends are born, develop, mature… and then die and reverse. This process is now underway in Apple (AAPL). Because AAPL’s market cap is so large, the expected  25% correction in this stock from peak to trough will cause an August swoon in the rest of the market and a correction in biotech.

A stock is like an engine that operates on two types of fuel: price and volume. Sometimes price gets ahead of volume and that’s what has happened with AAPL.

As you can see from this chart, which plots volume at price, AAPL formed a High Volume Node (HVN) around $127 (dark blue line). For AAPL to move higher, that HVN needs to act as support. Right now it is resistance; heavy resistance.

The other serious problem for AAPL is the lack of volume between $115 (where it just filled a gap) and the next gap target below, which is at $100. This creates a ‘speedzone,’ which is like an air pocket for a plane.

If the gap fill scenario plays out, shares of AAPL would undergo a 25% correction from the stock’s all-time high. That’s not going to be fun, but this process is already half way done. Believe me, this market can afford it.

The Apple dip is likely to trigger the over-due correction in biotech, which would also be healthy for the market.

What could prove this imminent AAPL correction theory wrong? A move back above $127. In the meantime, perhaps buy the watch and take profits in biotech.

FD: I hold no positions in AAPL or biotech.

AAPL-2.png

If you would like to receive a primer on using Volume Profile, please click here:  www.daytradingpsychology.com/contact