Apple (AAPL) announced its fiscal fourth-quarter results after the close Monday, beating expectations on the top and bottom lines. Looking forward, Apple projected fiscal 2014 first-quarter revenue of $55 billion to $58 billion, which was above the $55.5 billion estimated by analysts, although that revenue is likely to come on smaller gross margins than analysts foresaw.
Let’s take a look at how the stock reacted and see if we can get some clues about future direction.
The stock initially dropped about 5% to $503 in after-hours trading before rallying back higher to Monday’s closing price. The mixed initial reaction doesn’t yet say much about how the stock will trade on Tuesday, but the fact that the stock didn’t drop or rally in a major fashion may indicate a more muted reaction in the near term. Either way, Apple remains well positioned in the core businesses it is in and the medium-term charts continue to look favorable for higher prices.
When I discussed Apple last week, my main theme was that the rally into earnings may offer traders and investors an opportunity to take partial profits on long-side bets. (That was not a bearish call, but rather simple risk management to apply in a trend-following strategy.)
From a longer-term perspective, Apple’s rally off the April lows is starting to approach a wide resistance area between $545 and $580. This resistance area is marked by the 50% and 61.80% Fibonacci retracement levels of the entire selloff from the September 2012 highs down to the April 2013 lows. I am pointing out this area not to be vague but rather so that those with longer-term time horizons or investors playing the stock with an options-selling strategy have a reference area to focus around.
Drilling down to the daily chart, Apple has two support levels to focus around. First support is in the $490 – 500 area, made up of the 50-day moving average (yellow) and the previous August downtrend resistance line, followed by support No. 2 around the $450 – $460 area, made up of the 100- and 200-day simple moving averages. On the upside, I also drew in the two resistance levels discussed on the chart above.
My Battle Plan
I have reduced my long position in Apple into earnings and am now waiting for a post-earnings reaction before making my next trade. Should the stock consolidate sideways, I will look to add to my position once again. I won’t immediately chase AAPL higher if it rallies into resistance at $545; I’ll wait a few more days to see if it can consolidate. If the stock sells off into one of the two support areas discussed, I’ll look to add to my long position.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.