Throughout the brutal month of October, I have pointed out the relative strength in Apple (NASDAQ:AAPL). While the bears eventually got Amazon (NASDAQ:AMZN) and hammered favorites like Nvidia (NASDAQ:NVDA) and Netflix (NASDAQ:NFLX), they were never able to really crack Apple stock.
Heck, the iPhone maker maintained its $1 trillion market cap with ease. Apple stock was down about 3% for the month of October, hardly worth batting an eye for long-term investors. The PowerShares QQQ Trust ETF (NASDAQ:QQQ), however, fell more than 8.5% for the month. Short of a powerful two-day rally at the end of the month, the Nasdaq-tracking exchange-traded fund (ETF) would have been down 12%.
Now just imagine the damage if Apple hadn’t held up so well.
Anyway, all of this predicated on whether Apple stock can now walk the walk after talking the talk. That is, let’s see if it can rally — or at the very least, not fall — after the company reports earnings after the close on Thursday.
It will join others, like Starbucks (NASDAQ:SBUX), another stud through the month of October, as shares actually rose 2.5%. CBS (NYSE:CBS), EOG Resources (NYSE:EOG) and U.S. Steel (NYSE:X) will all report as well, but none will be bigger than Apple.
Trading Apple Stock
Click to Enlarge On the short-term chart of AAPL stock (adjacent) and the long-term chart (below), Apple stock is near a lot of key areas ahead of earnings and that makes it tough to trade.
In the short-term chart, we can see Apple running into the 20-day and 50-day moving averages, as well as channel resistance (blue line). The 50-day acted as support on the way up and now it’s a question of whether Apple stock has temporarily broken below it for October or if it will now turn to resistance.
That largely depends on the reaction to Thursday’s earnings report. If Apple can close above $223, it will put these key levels behind it, where they will hopefully become support. This will also open AAPL to a retest of the $228s and a chance at its 52-week high near $233.50.
Click to EnlargeOn the downside, we need to see if the 100-day and channel support can again buoy Apple. Below those levels, and the $200 level may come into play.
It would obviously deal a devastating blow to bulls, but it wouldn’t be the worst thing in the world for Apple stock to work its way down to the low-$190s. To get there overnight would require more than a 13% decline. I obviously don’t expect that to happen.
But a decline to this area would fill the gap from August, bring shares down to the 200-day moving average and down to channel support (blue line). In my book, that would be a buy, buy, buy! Particularly as we go into the always-impressive holiday season.
So what’s the bottom line here? Apple stock has been a stud through October. I would be a buyer on weakness into the $205 to $210 area, a decline of 3.5% to 6.5%. On a rally, see if we can close over current resistance. Both cases will give investors a reasonable risk/reward moving forward.