Apple Stock: Lift Off
Apple Inc. (NASDAQ:AAPL) stock has been buzzing in the media recently, but the news really has nothing to do with Apple’s performance.
Samsung Electronics Co Ltd’s “Galaxy Note 7” phones have been recalled because the devices have a tendency to spontaneously catch fire and, in some cases, explode. It is so comical and funny but, at the same time, quite sad.
This news has helped fuel the recent rise in Apple stock, and this was especially seen when the markets sold off and AAPL stock was one of the few names that was able to register a positive close. The news only served to reinforce a bullish trend that has already begun.
I believe that a significant run off of the yearly lows has only begun for AAPL stock, and new all-time highs are a possibility I favor.
My views on Apple stock are strictly based on the prevailing price action, so all my data is pulled directly from the price chart. I have used technical analysis for the better part of almost two decades and, although it is not a perfect process, it has served me very well. I have learned that, regardless of the strategy, defining risk is always of the utmost importance, followed by being on the right side of the trade. Technical analysis has been instrumental in defining these extremely important factors.
The following AAPL stock chart illustrates the price weakness that Apple stock suffered in 2015-2016.
Chart courtesy of StockCharts.com
Apple stock declined from a high of approximately $130.00 to a low of $90.00. The selloff represented a draw-down of 44%, and would have been quite a concern for many. I, on the contrary, welcome such pullbacks, as they are healthy and they alleviate much of the overbought conditions that stocks exhibit as they run higher in price.
The Fibonacci retracement numbers (highlighted in green) are a very popular tool used by many technical traders. This tool is used to identify counter-trend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50%-62% of the primary move. A pullback of this size has become a normal phenomenon after a stock has ended a surge higher in price. The 50%-62% zone usually offers support, as savvy traders will be eyeing this area as one to enter long positions or cover short positions.
The level marked 50% proved to be tremendous support, as $90.00 proved to be a major floor. This price level also marked the previous all-time high in AAPL stock. Therefore, the pullback in share price served to both backtest the previous level of resistance and to fulfill a normal pullback within a bull market trend. This price action only served as further support, and it reaffirms the predominant bullish trend higher.
If I am looking for a price target, and I assume an A-B-C price pattern where A and C are equal in height, then I extrapolate a price target for AAPL stock of $170.00.
The following Apple stock chart illustrates the bullish price action on a short-term basis, which resembles the price action on a long-term basis.
Chart courtesy of StockCharts.com
The price action on the AAPL chart above can only be interpreted as bullish. Bullish trends are made up of impulse waves that are followed by consolidation waves that then give way to another impulse wave. It is common for impulse waves to mirror each other so, just based on this pattern, a potential short-term target price is $125.00.
This trend of impulse waves followed by a consolidation wave can continue until valuations become suspect. Price trends have a habit of overshooting, and this is caused by emotional biases that have a tendency to cloud rational investment thought.
The Apple stock chart above is so perfect that I would say it is a textbook version of a bullish trend. The uptrend line serves as the predominant trend, and acts as an appropriate level of support. As long as this trend line continues to act as support, the trend higher will continue at this trajectory.
The Bottom Line on AAPL Stock
I am bullish on Apple stock and I believe that the charts are indicating that new all-time highs are on the horizon. My views are based on the price chart, so if the trend on the AAPL stock chart changes, so too will my view.
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