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Island Living and Apple

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AP

We know Apple's stock is at all time highs.

We know they can't sell enough of the latest and greatest (yes.. it talks back to you) iPhone.

But what you might not know, is that from a technical perspective, Apple's chart might not be looking too good heading into earnings.

As Dan Nathan of CNBC's Options Action and of Riskreversal.compointed out, Apple could be forming an "Island Top"formation, a benign-sounding pattern that carries bearish implications for Apple shareholders.

According to Trending123.com, an Island Top "occurs when the price “gaps” above a specific price range for a number of days and then is confirmed when the price “gaps” down below to the original range."

Looking at a six month chart, one can see the massive gap higher. The big question heading into tonight: Will it reverse and gap lower, thus forming the aforementioned Island Top?

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That's anyone's guess, but according to Nathan, there exists few catalysts that could propel the stock higher.

Said Nathan: "I think you'd have to crazy to put new money in the name unless we see a healthy pullback."

P.S. - On last Friday's Options Action, Nathan suggested taking a contrarian view and took a bearish bet in the form of the October 405/390 Put Spread. That packages is being offered as of noon today for $3.50.

Watch Options Actionon CNBC Fridays 5:00pm ET, Saturdays at 6a ET and on Sundays at 6a ET

Questions, comments send them to us at: optionsaction@cnbc.com

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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