Apple Is Still Ripe for Upside

by Tyler Craig | September 10, 2013 9:06 am

Apple shares climbed back above the $500 mark in anticipation of Tuesday’s media event, in which the tech giant is expected to release the details of two new iPhone models. Let’s head to the charts to see how the stock is set up heading into the big day.

The re-emerging behemoth escaped the recent stock market downturn with little damage. Its recent price dip — a pause, really — took on the form of a bull flag, which is a popular continuation pattern. The flag may well be the bulls’ banner revealing their ongoing reign. Monday’s 1.6% pop both completed and confirmed the flag, suggesting a renewed advance in the stock. Provided AAPL remains above the $486 support level, the uptrend looks healthy and the odds of additional upside looks high.

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While today’s announcement acts as a bit of an X-factor, most technicians believe that news tends to follow the trend. As such, I suspect the event is more likely to be a positive catalyst than negative.

But what of the ol’ “buy the rumor, sell the news” phenomenon? Might we see a selloff afterward as traders who purchased the stock in anticipation of the event then take profits? While any scenario is possible, I’m not entirely convinced we had much of a “buy the rumor” crowd over the past few weeks.

Sure, AAPL has risen recently, but so has the broader market. Analyzing AAPL’s recent behavior from an absolute basis, then, will yield little. Instead, let’s view its relative performance. Since both the Nasdaq Composite and AAPL began their latest advances on Aug. 28, the Nasdaq is up 3.5% while AAPL is up 4.1%. So, yes, AAPL has rallied more than the overall market — but not by much.

If you’re looking for a continuation in AAPL’s trend — whether it’s accelerated by today’s announcement or not — one high-probability strategy worth consideration is selling the September 485-480 bull put spread for $1.00 credit. Consider it a bet that Apple’s share price will remain above the aforementioned support level at $486 for the next two weeks.

The max reward is limited to the initial $1.00 received; the max risk is limited to the distance between strike minus the net credit, or $4.00. To reduce the risk, consider exiting if AAPL falls below the short strike price at $485.

At the time of this writing Tyler Craig owned shares of AAPL.

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