Apple Inc. (NASDAQ:AAPL) shares have rallied about 5.5% week-to-date off Monday’s intraday lows, and from a swing trading perspective, they’ve quickly wiggled into a much brighter spot. Active investors and traders should respect the price action in AAPL stock, and read on to examine how to play the stock long in coming weeks.
Like other large-cap tech stocks, Apple — after overextending itself in early and mid-October — began to correct, in this case, following its late-October earnings report.
From an investor sentiment perspective — measured by both my proprietary Twitter analytics as well as from an options positioning perspective — bullish talk on AAPL stock was once again nearing near-term extremes just as the company was about report earnings.
Alone, this rarely is a reason to leg into a bearish bet on a stock, but if this is confirmed by a notable bearish reversal by price action, you typically do see high-probability trading setups come to fruition.
As such, allow me to reiterate once more that as a general trading principle, making bets ahead of earnings or other events is a low-probability strategy. Much higher-probability trades tend to set up after events have triggered and upon price confirmation.
AAPL Stock Charts
Looking at the multiyear weekly chart of Apple stock, we see that shares topped out in April and May of 2015. After that, AAPL began a downtrend that did not come to an end until this past May, where it completed a retracement to the bigger-picture multiyear uptrend line.
From there, Apple began to bounce, and by July, it had overcome the black diagonal resistance line.
By September and into October, AAPL stock had marked its charts with higher highs versus the April highs, and thus overcame the intermediate downtrend more visibly. Thus, the “corrective” phase that followed in late October into early November can be viewed as a pause in what may be a new intermediate-term rally phase.
In other words, until a significant bearish reversal rears its head and Apple stock pushes below its 50-week moving average around $104, the intermediate uptrend should be respected.
On the daily chart, we see that the late-October and early November pullback in AAPL stock stopped right at the red 200-day SMA, which had also offered support in September.
This also lined up with the blue horizontal support area, which matched up with a 50% retracement of the entire rally from the May lows up into the October highs.
Respect the support zone around the $103-$104 area. Traders should consider playing AAPL stock from the long side against this level. Use the $115-$120 area as a first upside target.
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