Apple (NASDAQ:AAPL) is arguably the most successful company ever. It has a dedicated clientele that has no objection to price, and it still sells out of almost every widget it makes. Lately, AAPL stock has showed the results of this good business by setting new all-time highs.
Year-to-date Apple is up 80% — that’s more than double the return of the S&P 500. Very few people can find many faults with the company. However, from a trading perspective, there will be better entry points into Apple stock than blindly buying it now.
First of all, the equity markets in general are at all-time highs. This is in spite of macroeconomic threats that still linger. Yes, the rhetoric between the U.S. and China has become more friendly, but the two nations have fooled us before. So until the ink dries on the deal it’s good to retain some levels of caution. Also, all major central banks are very loose with the supply of money. But all of this is unprecedented, and we’ve yet to see the long-term effects of it.
For the longest time, Wall Street was undervaluing AAPL stock. So relative to that fact, it is now expensive. But this is not the same as saying it is too expensive in absolute terms, because it only sells at a 23.9 trailing price-to-earnings ratio. This is a fair price for a very successful company. But historically, Apple has sold at a ratio closer to 18.
I may have already upset a few people with this notion, but this is not a diss against the company’s success. This is merely advocating for finding a good entry point into the stock.
The recent rise has been so positive and so fast that it formed a very steep rising wedge. Last week’s price action left it dangling just above a ledge. And if it fails here, a small correction could be next. I don’t expect it to be a disaster, but rather a small reset to establish better footing.
AAPL Stock Is on a Path to $300
If Apple stock falls below last week’s low it could fill the gap down to $275 per share. Depending on the price action on Wall Street, AAPL could be vulnerable all the way down to $272 then $268 per share.
If this happens, it would make for a better base for a mid-term trade. The long-term success of the stock is almost guaranteed in this bullish market. But for the short term and for those who are trading Apple stock, there are some important levels to watch for bulls and bears.
On the upside, if Apple bulls set a new high, then they can target $286. Eventually they should round it up to $300 per share. The enthusiasm in the overall market and the love from its fans can elevate AAPL stock to another round-number mark.
Shorting AAPL for fundamental reasons doesn’t make sense. The company is still firing on all cylinders and is now expanding its scope of business out from the iPhone. So there is no reason to expect it to falter. But depending on your time frame, there are ways to trade the stock for better short- and mid-term success.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
