After the wild ride of the past two weeks in U.S. equities, many stocks — including Apple Inc. (NASDAQ:AAPL) — have seen V-shaped recoveries. While ultimately a retest of last week’s lows in the broader market looks likely in the autumn months, in the immediate to near term. a further squeeze higher could play out.
For Apple stock specifically, its downside may be limited until the Sept. 9 product announcement event, and AAPL might even have further upside into (and through) that date.
When Apple stock makes big strides, people take notice. Sentiment (i.e., the herd mentality in the stock) can often give us clues for the near to medium-term direction in AAPL. Over the years, I developed a so-called “contra-stream” on Twitter, which consists of a few hundred Twitter users that frequently tweet about their directional opinions of Apple stock.
Those users often nicely represent the near-term sentiment in the stock, which I frequently use to take the other side of.
As Apple’s stock price accelerated on the downside this past Monday, sentiment on my Twitter stream again tracked very bearish, with many calling for AAPL shares to fall into the $70s. Considering the stock had just fallen more than 20% since mid-July, and at the time it was also more than 30% off its April highs, it felt like a good spot to take the other side of sentiment.
And it was.
Apple stock has so far rallied back more than 20% since last Monday’s lows, and while sentiment has improved, it remains tilted to the bearish side, which is just one reason why I think AAPL shares could see some further upside in the near future.
Apple Stock Charts
Looking at the multiyear weekly chart of Apple stock, we see that the drop since late July pushed AAPL into an obvious horizontal area of support — which acted as resistance until October 2014 — early last week.
While there is no guarantee that Apple stock will hold these levels in the coming months, at least for a trade it was a good spot to circle, especially considering the aforementioned spike in bearish sentiment in Apple stock.
On the daily chart below, we see that AAPL stock last week saw its biggest spike in fear ever, as measured by the AAPL VIX in the lower part of the chart. The V-shaped recovery from last week also brought shares back to a horizontal line of resistance around the $113 area, below which the stock accelerated lower two weeks ago.
If Apple stock can hold above last Friday’s highs around $113.30, then a further squeeze toward $118.50 could materialize in coming days/weeks.
Any major daily bearish reversal candle would call the trade off.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
