$155 Is THE Critical Apple Inc. (AAPL) Stock Number to Watch

Position for support to hold in Apple in the coming weeks

By Tim Biggam, InvestorPlace Contributor

What Apple Inc.’s Deal For Shazam Means for AAPL Stock

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After a post-earnings rally that propelled Apple Inc. (NASDAQ:AAPL) to new all-time highs at $162.51, AAPL stock has fallen back sharply over the past four trading sessions. Apple is now perched just above crucial support at the $155 level. Given that the Apple bears have tried and failed on three separate occasions to break through this key price, I look for AAPL stock to hold this important juncture over the coming few weeks.

AAPL Stock: $155 Is THE Critical Apple Inc. (AAPL) Stock Number to Watch
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Most of the upcoming news surrounding Apple will likely focus on the impending iPhone 8 release, which is always fraught with conjecture by analysts and techies alike. The release date alone has been a hot topic, with expectations for either a likely Sept. 6 or Sept. 13 launch event being perhaps delayed by integration issues.

As a trader, however, I like to focus on facts rather than conjecture.

Technical analysis is the best way to examine the facts about what the market thinks about AAPL stock in a straightforward manner. In my previous article on Apple, I thought that Apple stock was looking exhausted at the $161 level which proved to be the case. In a somewhat similar fashion, I think the selling in AAPL stock appears to look exhausted now as well.

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As the chart shows, AAPL stock bounced convincingly off the $155 level on Aug. 3, again on Aug. 10, and once again yesterday. The price action evident yesterday was also indicative of a reversal day, as Apple traded all the way down to $155.11 before reversing to close nearly unchanged at $157.21.

Add in the fact that AAPL closed above the widely followed 20-day moving average of $156.09 and it certainly supports the notion that a short term low may likely be in place for Apple.

From a fundamental viewpoint, the recent 3% pullback in Apple stock has made valuations more compelling, especially given that both the latest earnings and revenues beat estimates handily. The price-to-earnings ratio for AAPL now is below 18 again and also at a major discount to the current S&P 500 multiple of 24.21. Lest we forget, the company now has a staggering cash hoard of $261.5 billion.

The options market is showing a fair amount of concern regarding AAPL stock with implied volatility (IV) now residing at 78% even post earnings. Heightened levels of IV tend to be a reliable contrarian indicator of a low in AAPL stock. High levels of IV also mean option prices are comparatively expensive, favoring selling strategies.

So to position for the $155 support level to hold in Apple, a bull put spread makes intuitive sense.

AAPL Stock Trade Idea

Buy AAPL Sep $150 puts and sell AAPL Sep $152.50 puts for a 55-cent net credit

Maximum gain is $55 per spread with maximum risk of $195 per spread. Return on risk is 28%. The short $152.50 strike price is well below the $155 support level and provides a 3% downside cushion to the $157.21 closing price of AAPL stock.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com.

Article printed from InvestorPlace Media, https://investorplace.com/2017/08/critical-number-apple-inc-aapl-stock/.

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