Shares of Apple Inc. (NASDAQ:AAPL) rose Monday in a move that could be the beginning of a rally into the company’s April 27 earnings report. Technically speaking, AAPL stock now has well-defined risk/reward at last week’s lows — something that active investors and traders should welcome from a risk management perspective.
News and rumors around Apple, the world’s largest company by market capitalization, fly by fast and furious on a daily basis. Among Monday’s headlines was a claim by LG Display Co Ltd. (ADR) (NYSE:LPL) that Apple would release an iMac with a super-high resolution display this year, and a change to Apple Maps that indicates AAPL may have ended an exclusivity agreement with Yelp Inc (NYSE:YELP).
Neither news item was “major” or anything that should’ve moved the stock more than a few basis points, so the fact that AAPL stock rose 1.6% on Monday more so shows the broader market’s risk appetite.
You see, market capitalization-weighted indices such as the S&P 500 are momentum-based, particularly as it relates to AAPL, which is the largest holding. In other words, if Apple stock gains upside momentum, it can pull the S&P 500 up with it, and vice versa. It’s somewhat challenging for the S&P 500 to rise without Apple, so when a broader risk-on feel for stocks arrives, it also tends to see AAPL stock bid higher.
AAPL Stock Charts
Looking at the multiyear weekly chart of AAPL, the breakout from last August past its previous all-time highs from September 2012 still stands and is providing upside momentum. Through a multimonth lens, the upside march seems to be somewhat too orderly, however, as the stock has been trading above the middle line (red) of its Bollinger Band channel for the past 12 months — a lengthy feat.
However, the trend shall remain in place until a more meaningful price reversal comes about, which from a news perspective at this point might not come about until the Apple earnings report in late April.
On the daily chart, there is a simple but interesting observation to be made. Looking at the past two consolidation phases for AAPL stock (September/October 2014 and December 2014 through early February 2015), the duration of those periods were between 30 and 40 trading days long. The current consolidation phase since AAPL stock topped out in mid-February is about 28 trading days. In other words, if Monday’s rally in Apple is to catch a spark and the past two consolidation phases are any guidance, it could take up to another 10 trading days for the stock to reach its February highs.
Again, I admit this analysis may seem somewhat arbitrary; however, near-term trend following tends to have well-defined patterns such as the one just described.
Active investors and traders could look to buy AAPL stock at $127.50 or higher for a move toward the February highs around the $133 area, using a stop-loss around $124.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
