AAPL 11/3/2013 – Is That Apple Cider In That Cup?
Since my first premium article started off with a trading channel for 3D Systems, I want to continue the "trend" with the next update for Apple (AAPL). After all, this is Trendy Stock Charts.
The above chart is a 5 year weekly candlestick chart for Apple. Notice the trading channel that Apple's share price stayed in up until it had a breakout from the channel. After the channel breakout, Apple raced to the $705 mark.
From the channel break at approximately $476 to the top of the peak at $705 represents an increase of 48% over a 7 month period. I will make a mental note of that since another stock covered here at Trendy Stock Charts, 3D Systems, appears to have just broken out of a trading channel like Apple did and both were in the channel for the same length of time - approximately 3 years.
So now back to Apple's chart. I am watching to see how Apple is reacting at this resistance area. The last significant resistance area it faced was around the $465 price area if you recall from a previous article of mine. If Apple can break through the $530 resistance area and then hold above it on any pullbacks, I may look to purchase additional shares to add to my current long position at that time.
For me to purchase some additional shares, I would like to see Apple break through the $530 resistance area on volume that is above average over the next week or two. Above average volume would indicate to me that the share price then has a chance to stay above the resistance area due to the increased buying demand. Any significant pushes downward from this level on heavier than normal volume would not be good for Apple's chart action and would cause me to consider selling some of my shares.
If Apple does break through the $530 resistance area, The next stop should be at least the bottom of the trading channel, or around the $600 - $625 area. There will be a little resistance along the way, possibly around the $575 area which I will explain in a little bit. But $625 does not appear to be anywhere near the final destination for Apple's share price.
Apple has a long 3 year history with the trading channel that it broke out of on its way to $705, only to come back crashing through the channel and bottom out around the $385 area. By no means is Apple done with this channel just yet.
By overlaying the Fibonacci Extension Tool on the above chart, it shows that Apple's share price has the potential of reaching the channel and possibly breaking into it again. Above I talked about resistance around the $575 area. The $575 area represents the approximate 100% Fibonacci Extension Tool price target line. With the little selling pressure that I noted also in the above chart, the chances for Apple to reach for the 161.8% line increase. The next chart reinforces the idea that Apple may indeed reach the 161.8% price target line, if not a little more.
Apple is developing a great looking cup chart pattern. A push up to the 100% Fibonacci Extension Tools price target line at $575 area would most likely complete the right side of the cup. If this occurs, watch to see if the cup pattern will develop a handle or not.
Once Apple breaks through the $530 resistance area and climbs up to the $575 area as noted above, this would be a perfect time for a re-test of the $530 resistance area that should offer support at that time. So let's say the handle drops down to approximately $525. The average rise from a cup with a handle is approximately 34%.
A 34% gain from $525 calculates to $704. That means that a breakout from the cup pattern would put Apple share price squarely back into the trading channel. This would also put Apple right back to the area of its all-time high of $705.
So here is my last Apple chart for this update. It is a 5 year monthly candlestick chart with a Fibonacci Retracement Tool drawn on the chart. Notice how Apple completed a 50% pullback on that massive run? It also re-tested the 50% Retracement Line before starting to advance again. Take a look.
I have a theory that I've developed over the last several years called the "2nd Chance Theory". This theory evolves around the central principle that after you purchase shares, sell shares, or take no action, the market always gives you another chance to make the "right decision".
Take for example the investors that purchased Facebook on its IPO day at the $45 high of the day. Those investors just got their second chance to make the right decision. The question is, is the right decision the time to unload the shares because you have now gotten back to even, or to purchase more shares as it shows some strength on its current uptrend? The market does not always reveal the correct answers in a timely manner.
It does appear though that any purchaser of Apple stock around the previous high of $705 may be given their 2nd chance soon if Apple does indeed breakout from the cup with handle chart pattern.
Don't forget that Apple also still has a considerable amount of money left in their authorized share repurchase plan - that could help keep the momentum going toward the $700 area.
It seems as if I have started to develop some expectations for Apple's short-term future as well now. In the next Apple update, we will look at a shorter-term perspective as well as its chart action around the $530 level.
Disclosure: As of the time of this writing, I am long Apple shares for an average cost basis of $478.79. I now own approximately 85% of the total Apple shares that I want to own. I am still waiting to purchase the remaining 15% of my shares and will look to do so on a breakthrough and subsequent pull-back to the $530 area.