AAPL Large Gap Down: Historical Precedence

• Posted by DynamicHedge
• on January 24th, 2013

$AAPL will open with a large gap down after missing earnings last night.  With such an enormous trading range in the after-hours session, it’s impossible to know where it will open.  If you currently own $AAPL no one can tell you how to trade the stock during what will be a very emotional session.  I can, however,  provide an objective analysis based on historical data through the lens of our pattern recognition software.

Below is a probability-weighted chart computed using every session in which $AAPL opened with a -4% or lower gap off the open in the last 5-years.  The chart is time scaled for the day-session only.  There are no guarantees of what will happen, but people tend to behave in predictably irrational ways during times of crisis.

The highest probability is that the opening range is the low for at least the early part of the session (Curves 1 & 2).  In many cases, panic doesn’t truly set in until later in the day (curve 2).  In others, the stock tends to catch a bid in the afternoon (Curve 1).  Watch for behavior off the open and a break-out or break-down around 1:15-2:30 PM.

 

Bonus material:

Below is the only time in the last 5-years where $AAPL gapped down lower than -10% off the open.

 

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