AAPL Stock: The Bull Remains Intact
Apple Inc. (NASDAQ:AAPL) stock suffered a bit of a setback after it reported less-than-stellar earnings. Investors were disappointed that Apple’s revenue growth continues to decline. This may be a problem going forward, but the price action that followed the earnings report did little to change the overall picture on AAPL stock, as it remains bullish.
I have been using price as the basis of my investment analysis for over a decade, and this style of analysis has been instrumental in my trading success. This process has been key in keeping my investment strategies systematic, while removing any emotional biases that may enter my investment decisions.
My view on Apple stock is strictly based on the price chart and, as long as the AAPL stock chart remains bullish, so too will my bias.
The following Apple stock chart illustrates the pattern that continues to dominate my trading bias.
Chart courtesy of StockCharts.com
The pattern that instilled my bullish bias was the descending triangle highlighted on the chart above. A descending triangle is characterized by two converging trend lines; one represents support and the other represents resistance. The price will oscillate between these trend lines until enough momentum is stored to break out of this pattern. Triangle patterns often have five points of contact before the pattern breaks in either an upward or downward direction
In August 2016, AAPL stock completed these five points of contact and broke out to the upside after an earnings announcement. The breakout of this triangle confirmed my bullish bias. The initial target based on this pattern is the old high near $130, where the descending triangle pattern began.
Larger patterns are more significant, and this one was two years in the making. The size of the pattern will translate into an equally large and lengthy reaction. The current run after the breakout may turn out to be only the start of an epic run.
In September, Apple stock effectively backtested the triangle from above. It is not uncommon for a stock price to return to a level that acted as a previous level of resistance, to test it from above to reaffirm that the trend has indeed changed.
There is nothing on the chart above that alludes to anything other than bullishness. In order for this view to change, certain levels of support would need to be broken, and those levels are illustrated on the Apple stock chart below.
Chart courtesy of StockCharts.com
There are noteworthy levels of support on the chart above, and I have highlighted the horizontal level of support and an uptrend line.
The first level of support is highlighted using a horizontal trend line. This level is pertinent because, after the triangle pattern was resolved, the Apple stock price reaffirmed the bullish view by making a higher high above this level.
The second level of support is the uptrend line and this trend is created by connecting the valleys on the AAPL stock chart. The price should remain above this level, as the trend higher continues.
Both levels of price support are converging around one price, and it is imperative that Apple stock remains above this price in the coming weeks, or else the bullishness suggested by the prevailing triangle becomes suspect.
I have included the golden cross to illustrate that the prevailing tailwinds are bullish, which has increased the odds that support will hold. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). This signal indicates that a bull market in AAPL stock is in play.
The Bottom Line on Apple Stock
I am bullish on Apple stock, and the drop in its price after Apple’s earnings were released did very little to change the overall picture. My bias is based on the AAPL stock chart and, as long as that picture remains bullish, so too will my view.