Apple Stock: Targeting Resistance
What is there not to love about Apple Inc. (NASDAQ:AAPL) products? I personally have an “iPhone” and a couple of “iPads,” and I must say that these products have become a staple in my life such that I would have a hard time living without them. I am sure my affinity for Apple products is shared with other consumers as well.
This loyalty to the brand has helped fuel Apple Inc.’s bottom line, and in return, investors have been rewarded by AAPL stock as it continues to forge new highs. Despite any volatility caused after Apple posted its second-quarter results on May 2, AAPL stock’s stellar performance is set to continue. This view is based on the price action on the Apple stock chart, which continues to suggest that the path of least resistance is geared towards higher prices.
For those not familiar with my publications, I generate my views on a potential investment by analyzing the company’s price chart. This method of investment analysis known as technical analysis, and it is based on the notion that historical price and volume data can be used to discern a trend and forecast future prices. Much of my time is spent deciphering price patterns and indicators that are generated using this data, and I have found tremendous value in this method of analysis. As a result, I have spent the better part of almost two decades dedicating my time to refine my skills in this method of analysis.
The following chart illustrates the indications that serve to suggest that Apple stock is geared towards higher prices.
Chart courtesy of StockCharts.com
Apple has been the focus of a number of publications, and I have used this price chart on a number of occasions because it does a great job of simplifying the overall bullish trend. The bullish trend is easily captured using an ascending channel. This technical price pattern contains two parallel upward-sloping trend lines that serve to define lower support and upper resistance.
Apple has been oscillating within the confines of these two trend lines since the financial crisis concluded in 2009. Using this channel as a tool is almost as easy as it was to create. As long as Apple is trading within the confines of this channel, I can only presume that the longer-term bullish trend is still intact, and therefore, any ill-timed entry into this investment will be rectified with time. Playing the range is also simple because each and every time one of the trend lines has been met, it has caused the trend to reverse and AAPL shares to trend in the other direction until the opposing trend line has been met.
The moving average convergence/divergence (MACD) indicator located in the lower panel has been instrumental in supporting the trend after it has met a trend line. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
Each and every time a bullish cross was generated, it served to indicate that bullish momentum was propelling Apple stock, and therefore the path of least resistance was geared towards higher prices. A bullish cross is currently engaged, so it is fair to assume that the trend towards higher prices will continue until resistance outlined by the ascending channel is met.
The price action on the following short-term AAPL stock chart supports the view that higher prices are likely.
Chart courtesy of StockCharts.com
This short-term price chart illustrates the price action over a three-month basis.
On February 1, Apple surged higher after it crushed earnings expectations. This left a sizable gap on the price chart, which I labeled a continuation gap. Continuation gaps mark mid-points during a trend, and if I apply this mid-point theory to the Apple stock chart, it produces a target price of $156.00, which is in line with resistance outlined by the ascending channel.
The price action that followed has been constructive in nature, consisting of an impulse wave that served to advance price, and a consolidation wave that served to alleviate overbought conditions and set up the next advancing impulse wave. This alternating wave structure is essential to create a sustainable trend.
On March 1, Apple shares exited the consolidation wave in an upward direction, suggesting that a new impulse wave is now in development. This bullish view is being supported by a bullish MACD indicator, which is suggesting that bullish momentum is now influencing Apple shares.
The constructive price action can also be used to generate a potential price objective. It is based on the notion that impulse waves that are separated by a consolidation wave tend to mirror each other in length. Applying this notion to the price chart above produces a potential price objective of $158.00, which is also in line with the resistance outlined by the ascending channel.
Bottom Line on Apple Stock
Indications on the AAPL stock chart continue to suggest that Apple stock is geared towards higher prices. Regardless of the outcome surrounding the earnings report, I still believe that higher prices are on the horizon.