Shares of Apple Inc. (NASDAQ:AAPL) surged another 3.54% on Wednesday, topping one of the biggest three-day rallies in the stock in recent memory. While Apple stock might be somewhat overbought now in the short-term, this latest rally has put shares in a more constructive posture for the next few months.
In other words, AAPL stock is becoming a buy on dips rather than a sell on rips.
After last week’s new product announcements, which included the iPhone 7 and iPhone 7 Plus, Apple initially traded lower for a couple of days. But this tone drastically changed on Monday when the bulls stepped in with a vengeance, leading to this three-day, 8% rally. This sudden rally has come on a plethora of “it’s not so bad” to “it’s good” commentary from the analyst community that may have changed the picture. This morning, things look to continue, as reports say Apple has sold out of the Jet Black iPhone 7 and all colors of the iPhone 7 Plus.
Apple stock has seen a great deal of upside call buying over the past couple of days, which shows how giddy traders have acted this week.
As a side note, AAPL shares, at +6% year-to-date, are outperforming the S&P 500.
How about that.
Apple Stock Charts
Looking at the multiyear chart, we see that AAPL topped out in April 2015 as it became too overextended above its longer-term support line. The mean-reversion move lower from April 2015 into the May lows of this year measured more than 30%.
The summer months, however, brought about a wind of change as Apple stock began to lift. By early August, AAPL managed to break past the diagonal resistance line from the 2015 highs. The stock’s rally so far this week has it forming a notable bullish outside candle. Should Apple close above $109, that would confirm the breakout past diagonal resistance, and make the case for higher prices over the next couple of months.
When I last mused about AAPL stock on July 27, the stock was just beginning to near the aforementioned diagonal resistance line. I wrote that “a convinced push and hold above $104 could get the stock rallying toward $110.” This $110 price target was reached yesterday; from a swing trading perspective, I’m at least taking partial profits right now.
Looking at the daily chart, we see that after the initial breakout past the black diagonal resistance line in August, AAPL began to pull back. The Friday and Monday lows in Apple coincided with the diagonal former resistance line (now support), as well as the red 200-day simple moving average.
Monday’s rally formed a bullish engulfing candle on the daily chart, which set the stage for the Tuesday/Wednesday rally. In other words, the pullback in Apple stock into early September acted as a retest of a former line of resistance.
If Apple stock can stick a landing on this bullish reversal candle on the weekly chart, the stock again becomes a buy on dips rather than a sell on rips. That is, if all else is equal, and until we see a bigger weekly bearish reversal again.
Your next upside target on AAPL is around $120.
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