Shares of Apple Inc. (NASDAQ:AAPL) are higher by a solid 20% year-to-date, and AAPL stock is up 40% over the past 12 months. Making “bets” on a stock based on its recent percentage moves doesn’t make much sense, though, in a raging risk-on environment such as we’ve seen since last November.
Over my career, I have found that applying a multi-time-frame approach to stock trading and investing not only allows for better perspective, but as a result, also results in superior risk management — and dare I say “timing” of trade entries and exits.
I make it a point in this column to often remind ye faithful that stocks are a highly correlated asset class, particularly compared to other asset classes such as commodities. While the price of pork bellies has little correlation with the price of gold, within the stock market, around 80% of stocks tend to rise and fall together at any given time. I point this out because while the year-to-date rally in AAPL stock is impressive and worth respecting until it reverses, there also has been a broader stock market risk-on trade thus far in 2017.
More than anything, I highlight this for perspective.
When I last discussed Apple stock on Feb. 2 following the latest earnings report, I said that shares were reaching a critical technical area of resistance through a multimonth lens. While AAPL has since marginally pushed above this technical area, the tale of two time frames remains.
Today, I would like to reiterate and update this analysis.
AAPL Stock Charts
On the multiyear weekly chart, we see that Apple over the years has greatly respected its 200-week simple moving average (red), which was a source of technical support in 2013 and again just last year.
At the same time, we also see that each time AAPL stock gets overly extended above this moving average, it tends to fall into a consolidation phase. Currently, the stock trades roughly 30% above this moving average; at past extremes, Apple traded as much as 50% above it.
From this perspective, AAPL stock could have further to run on the upside.
On the other hand, the MACD momentum oscillator at the bottom of the chart has now reached levels that in the past led to some downside pressure.
Lastly — and I believe most importantly — the rate of change (i.e., the near-vertical rally over the past couple months) has pushed AAPL stock back above its 2015 highs. While this in and of itself is a positive development, previous important highs rarely if ever are overcome on a sustainable basis until and unless some consolidation near those previous highs has taken place.
Apple stock has yet to consolidate. Thus, it likely will find the current upside momentum unsustainable over the next few weeks or even months.
On the daily chart, we see that AAPL gapped higher again following its Jan. 31 earnings report, and despite already being overbought by plenty of measures, kept pushing higher as the broader stock market animal spirits brought in fresh momentum.
Note that except for a couple days in early January, AAPL stock has now held above its 8-day simple moving average (blue) since early December 2016. That is a long stretch to be trading above such a near-term moving average. I feel it increasingly begs for some consolidation lower.
At the same time, until this moving average is broken on the downside, one must continue to respect the uptrend.
Through this near-term lens, if AAPL can close above $140, a next squeeze higher into $143 – $144 looks plausible. Alternatively, a break and hold below $138.50 could set in motion a better consolidation move lower with first downside targets near $136 and $132.
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