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Juicy Trade Setup in Apple

The tug of war in APPL has traders on both sides of the fence, but the charts don't lie about what's likely ahead


It’s all over the news: “Apple (NASDAQ:APPL) down 25% from its 2012 highs.”

Buy and sell recommendations from brokers around the world based on the company’s latest quarterly, weekly, daily or five-minute iPad sales estimations are enough to confuse even the best of us. I am here to offer a pure high probability bullish technical trade idea on Apple, where clearly defined risk keeps emotions at bay.

A brief look at Apple’s four-year chart gives the recent price correction some context. The stock’s orderly incline from 2009 to 2011 started going vertical in 2012, moving the stock price further and further away from its four-year uptrend.

While some are already calling an end to Apple as a company and others still have their $1000 price target for 2013, to me this most recent consolidation is, for now, simply a mean-reverting move.

The four-year uptrending channel currently spans from around $470 on the lower end to roughly $540 on the upper end. With last week’s continued weakness, the stock finally broke back into this longer-standing uptrend, where a bounce is a likely scenario.

The following chart has three points which also signal potential near-term support:

  1. The area between $520 and $530 has served as support for most of this year and again held Friday, Nov. 16.
  2. Volume on Friday, Nov. 16 at just above 45 million shares was almost double its 15-day average daily volume.
  3. Momentum as measured by the slow stochastics indicator points to an oversold condition. While oversold/overbought conditions can remain for some time, combined with the other two points, it is more trustworthy of an indicator.

Lastly – and for my approach most importantly – Nov. 16’s intraday trading action in Apple has left a picture perfect hammer candlestick on the daily chart, which on Monday, Nov. 19, was confirmed with meaningful follow-through buying. A strong hammer at an important support level, coupled with oversold conditions is a high probability setup for a long-side try in AAPL for me. As a target, I am spotting the mid $590s, which are close enough for a re-test of the 200-day simple moving average from underneath.

And remember: given the heavy weighting that Apple has in the major indices, a long-side setup in this stock is essentially a bullish trade on technology, i.e. the Nasdaq 100, as well as the broader market, most likely the S&P 500.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

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