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Apple: Watch for a Classic Buying Setup in AAPL Stock

AAPL scores a marginal breakout move following Q4 earnings

Technology giant Apple (AAPL) reported better-than-expected earnings Monday evening, leading to a Tuesday rally. And this move higher had bullish consequences from a technical perspective, as AAPL stock managed to overcome its early October highs and marginally broke out of a multimonth consolidation phase.

beat the bell stock investing adviceSpecifically, Apple came in with fiscal fourth-quarter earnings that grew 20% year-over-year to $1.42 to beat analyst estimates of $1.31. Revenue for the quarter came to $42.12 billion to beat analyst estimates for $39.85 billion.

If we take a step back and think about this for a moment … AAPL is the world’s largest company with a market capitalization of more than $600 billion, and it still managed to grow sales by 12% year-over-year. That’s nothing short of amazing. Apple also managed to sell 39.3 million iPhones and 12.3 million iPads in the quarter, not to mention more than 5.5 million Mac computers.

Most importantly: This quarter barely reflected any sales of its newest batch of iPhones and iPads, as only the iPhone 6 was available in limited supply in the second half of September.

AAPL Stock Charts

Looking at the longer-term weekly chart of AAPL stock, note that after the correction from late 2012 through the first half of 2013, Apple resumed its uptrend and, by August of this year, managed to crawl back to previous all-time highs from September 2012. Naturally, after reaching such a critical resistance level, AAPL stock didn’t just rip past it and continue to climb, but rather it settled into a multimonth consolidation phase, which from this perspective is constructive price behavior.

Investors dabbling in the medium- to longer-term time-frames in AAPL stock can use the Relative Strength Index (RSI) at the bottom part of the chart as a decent indicator of strength. With the rally in AAPL stock of recent days, RSI is slowly moving back up and adding credibility to Tuesday’s breakout move.

aapl stock weekly chart
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On the daily chart, we see that after the steady August rally, AAPL stock topped on Sept. 2 and moved into a choppy sideways period. As mentioned above, however, the consolidation phase was constructive and gave the attentive investor clues of underlying strength both on Sept. 9 and Oct. 15/16 when it left behind bullish reversal candles on its daily chart.

Tuesday’s rally came on an up-gap move, and Apple stock managed to close the day above its early October highs, as well as above the bullish flag pattern that marked the nearly two-month consolidation phase.

AAPL stock daily chart
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Active investors and traders can now use Tuesday’s strength to get long AAPL stock for a move toward the $110 area. This is a straightforward follow-through buying setup, which is to say that if AAPL fails to follow through on the upside and subsequently drops back below the $99.50 area, the stock will need more time to consolidate before a better move higher is possible.

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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.

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