Apple is Almost Ripe for Picking
06/13/2013 9:00 am EST
Apple stock, on a charting basis, rests near a major inflection point that is worth our attention, says technician Corey Rosenbloom of AfraidtoTrade.com.
Depending on what happens at the current price levels, we will be looking for a movement up to a dual-indicator projection target or else lower for a retest of the prior low.
Let's update our Apple (AAPL) analysis game-planning and focus on the key inflection level, upside projection on a breakout, and downside levels should a breakout here fail (meaning resistance held and the downtrend continued).
We'll start with the daily chart:
Apple (AAPL) stock has been in a daily chart downtrend since the $705 peak on September 21, 2012. For reference, downtrends are defined as a series of lower lows and lower highs, which also reveals a declining orientation of the 20 and 50 moving averages.
At the moment, Apple (AAPL) stock is trading sideways (consolidating) between the $470 resistance high and $425 low (the 2013 low is $385 on April 19).
A change in trend structure—and thus a bullish trend reversal—would occur on a clean break and rally above the $475 easy-to-remember reference level. That's where we'll focus our attention.
A Fibonacci retracement grid drawn from the high to the low (as shown) results in $507 for the 38.2% retracement and $545 as the “half-way” point or 50% retracement.
We'll also focus on this level because it forms a confluence with a bullish inverse head-and-shoulders price pattern, which we can study on the hourly chart below:
While it's often easier to view classical head-and-shoulders patterns, inverse head-and-shoulders patterns are simply mirror image (flipped) versions of the popular pattern.
Classical definitions require a left shoulder (March) and right shoulder (May), be separated by a lower low or the head of the pattern (April).
From this, we can define a “neckline,” which exists loosely at the $465 per share level.
The price pattern has a built-in price projection target in the event price triggers a breakout beyond the neckline. A trader needs only to subtract the distance from the neckline to the head and then add that value to the neckline for a potential “price pattern projection target” on the chart.
In this case, with the head at $385 and the evolving neckline near $465, we get a projection line of $80 per share.
When we add this to the neckline, $465 plus $80 equals $545. If $545 sounds familiar, it's because we observed the 50% or “halfway” Fibonacci retracement at this level on the daily chart.
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No, there's absolutely no guarantee that Apple (AAPL) will break higher here to trigger this pattern, and even if price does break above $475 that the stock will continue to the full target. It does, however, provide a reference level if the stock does trade higher from here, thus allowing us to develop trading strategies along the way.
Sometimes it's helpful to have an exact price in mind to monitor as price trades higher toward this fixed level. It can be better than saying “I'm bullish on Apple and, well, really don't know how high it can go but I know it's going higher.”
Targets—whether achieved or not—provide structure and a framework to monitor real-time developments as price moves toward or away from these levels.
As a reminder, it's always helpful to check the weekly chart or higher frame structure/levels before deploying trading strategies off a daily or intraday chart.
Here's a quick and simple view of Apple's weekly trend and reference levels:
With the 2009 bottom, Apple (AAPL) stock rallied from $80 to the $700 peak in a stellar rally that was uninterrupted until the 2012 peak and short-term reversal.
A green larger Fibonacci retracement grid shows the most important reference levels for the moment:
- 38.2% level into $466 (roughly where the “neckline” has formed currently)
- 50.0% level into $392 where the 2013 low developed.
Whether it's pure coincidence or self-fulfilling prophecies, the larger Fibonacci reference levels are our current chart-based support/resistance levels on the daily chart.
Once again, a bullish breakthrough above the $470/$475 level suggests that a new short-term uptrend may develop toward the dual-target of $545 (shown above).
We can't just assume price will go up because a pattern has developed. As traders, we must plan for unexpected or alternate outcomes beyond what we would expect or even prefer to happen.
In this case, it would be a continuation of the short-term consolidation pattern between $475 and $425 (or $400, which would return price near the 2013 low).
I like to highlight red and green “bear and bull” zones on my chart to help clarify not just price pathways, but remind me to drop biases as much as possible.
Continue studying price activity relative to these levels and create trades based on the movement toward or away from these support/resistance and price targets.
By Corey Rosenbloom, CMT, Trader and Blogger, AfraidtoTrade.com