Apple's stock is up Thursday, but the recent selloff may be far from over.
Extraordinary volume during the stock's plunge this fall signals another 20 percent decline is still ahead, a top chart analyst on Wall Street says. (Read more: Apple Defies 'Death Cross')
"Along with the two volume 'spikes' cited in my Nov. 16 note, yesterday (Wednesday) was another volume 'spike' day on the downside suggesting that the $528 support area will in fact be decisively broken on a closing basis over the near-term," said John Mendelson, technical analyst for ISI. "My view continues to be that because the stock ran up so fast last spring, the next significant support area is $420."
Technical analysts like Mendelson, who was ranked 19 times in that field by Institutional Investor magazine over his long career, often look at volume to gauge changes in supply and demand for a stock. In this case, because the heavy trading is occurring as Apple is falling, it may be signaling a mass, ongoing liquidation as the year comes to a close.
Apple fell 6 percent Wednesday to $538.79 for its worst one-day loss in four years. About 37 million shares changed hands yesterday, almost 70 percent more than the average daily volume for the stock. (Read More: 'A Real Conflict' for Apple Stock: Milunovich)
Mendelson is focusing on the $420 level because that is where the stock established a base, trading around that price for a few weeks at the beginning of January before taking off.
"Technical analysts follow spikes in volume because they often signal panic selling or panic buying," said Dennis Gartman of The Gartman Letter. "History shows that they often mark major turning points for stocks."
Apple is already down more than 20 percent from its high reached at the end of September. The selling has accelerated again this week. However, the shares are still up 35 percent on the year.
Analysts who study charts seem to be a lot more bearish on the stock than analysts and investors who concentrate on fundamentals. (Read More: Trading Apple Near Its 'Death Cross')
The fundamental Apple analyst at Mendelson's very firm, Brian Marshall, has a $710 price target on Apple, citing strong holiday sales.
"This is tax selling and hedge fund liquidations," said Mike Murphy of Rosecliff Capital, who is an Apple bull.
Speaking of hedge fund liquidations, Diamondback Capital Management closed down today amid heavy withdrawals and an insider-trading investigation. Diamondback held shares in Apple.