With the Nasdaq now launched into orbit, it’s becoming increasingly difficult to find low-risk opportunities in the tech sector. Typically during such a drought traders have to search high and low for an attractive setup.
But not this time. Curious enough the biggest tech titan of them all, Apple Inc. (NASDAQ:AAPL), has one of the best setups in the space. Indeed, while its peers have been skirting the stratosphere, Apple stock has been quietly consolidating in a box.
It’s a box that’s about to burst, and I suspect it contains profits aplenty inside for spectators willing to bet on its opening.
AAPL is up 3.6% year-to-date, so it’s not as if it hasn’t participated in the New Year rally. But since its ascent began at the lower end of its two-month range all the rise has done is ushered AAPL to the top of the box.
Moreover, with the stock essentially flat for the past five trading sessions it’s not near as extended as its peers.
One handy metric technicians use to gauge a stock’s “overboughtness” is its proximity to the 20-day moving average. Notice how AAPL is still nestled close to the 20-day (red line in chart)?
That means the stock is anything but overbought. With major resistance looming overhead at $176, the trade idea here is simple. Either initiate bullish trades now in anticipation of a breakout or wait for a price pop above $176 and then strike.
Apple Inc is slated to report earnings on February first, so that’s another potential catalyst worth eyeing. A pre-earnings ramp in the stock will obviously help out buyers of the eventual breakout.
Trade the Apple Box
Buy the $175/$180 bull call spread for $2.15. This positions you to more than double your money if Apple stock can rise above $180 by expiration. The risk is $2.15 and will be forfeited if the stock sits below $175. The reward is $2.85 and will be captured if the stock sits above $180.
If you have a decent profit heading into earnings, you could exit the position to avoid a potential post-earnings fallout in the stock.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.