Shares of technology giant Apple Inc. (AAPL) have rallied nicely in recent weeks along with the sharp bounce in the broader market and on the back of its latest quarterly results. While AAPL stock still is well-positioned in the longer term, Apple is increasingly overbought in the near and medium terms. Thus, active investors and traders could use the recent strength to take some or full profits, then look to buy again at lower prices.
On the news front, Apple has entered a quieter period as far as major product launches are concerned after pushing out new products in both September and October. One of the next major focus areas for investors is the release of the Apple Watch. Earlier this week, it was reported that the Apple Watch will be delayed to availability in the spring of 2015, as opposed to the previously announced “early 2015” release.
For reference and transparency purposes, in my last take on AAPL stock on Oct. 22, I said that Apple’s post-earnings rally should push Apple higher toward a well-defined price target near $110. This Monday, AAPL reached said price target, but now looks increasingly tired and overextended for the near term.
AAPL Stock Charts
As a result of the recent extension rally in AAPL stock, the longer-term chart has now resolved to the upside and well past its September 2012 highs. Longer-term investors can take solace in the fact that the rally from the 2009 lows up to the September 2012 top retraced 50% by the spring of 2013, washing out many weak hands in the stock and bringing more stable ones back in.
On the way back up, the stock then paused near its September 2012 highs before pushing higher — also a positive sign.
While this is all positive for the longer term, in the near to medium term, AAPL stock looks extended and due for a breather, including a potential retest of the breakout area near the $100 mark.
On the daily chart below, note that since AAPL stock has broken out of the bull flag formation (black parallels) on Oct. 21, it has now extended higher by nearly as much as its previous rally into the top of the bull flag (see blue arrows), which classically measures a profit target. Additionally, momentum indicators are well overbought.
Active investors and traders that played the stock higher after the Oct. 21 breakout move could now consider taking at least partial profits, then wait to buy again at lower prices.
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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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