AAPL 7/29/2013 – Engulf Me


In the last Apple (AAPL) update the morning of July 25, 2013, I mentioned to watch and see if AAPL makes a higher high or a lower low that day – well it made neither.  It stayed within the prior days trading range. But on July 26, 2013 AAPL made a new low in the morning as compared to the prior 2 days candlesticks. However, after the new low was made, AAPL then proceeded to climb the rest of the day and close higher than the prior 2 days and form another engulfing candlestick.

 

 

Apple (AAPL) Showing More Positive Chart Action

 

After the engulfing candlestick pattern on Friday, AAPL opened strong and proceeded to climb to $499.99 in intra-day trading. This is why I like to wait until the end of a day and examine the candlestick formation at the end of a day. I am not a good day trader – I prefer to call myself a “swing” trader and like to make decisions that have some thought behind them rather than rash decisions during a day. Don’t get me wrong, I may make moves intra-day, but usually those moves are part of a larger overall strategy.

While the volume for the 2nd engulfing candlestick is not impressive, notice the increasing volume for today, the day after the engulfing candlestick. AAPL could be attempting to breakout of the ascending triangle pattern that was noted in this Apple update.

 

So since I am still holding onto 50% of my shares from the beginning of this AAPL trade, let’s see if I can come up with a short-term target to sell my remaining shares. I will use the Fibonacci Extension tool to help determine my selling price range – this tool is one of several methods that can be used to come up with a preliminary selling target.

One of the reasons I did not sell all my shares when AAPL reached the top of the ascending triangle was in case of a breakout from the ascending triangle. Remember, as I mentioned in my prior updates I am long term bullish Apple. I sold 1/2 my shares to lock in profits and was going to hold the other 1/2 through a pullback to the bottom of the ascending triangle or a breakout above the triangle. AAPL appears to be breaking out so let’s use the Fibonacci Extension tool now to come up with that selling target.

 

The Fibonacci Extension tool has 3 anchor points (requires 3 mouse clicks to place).

  • Anchor point 1 is placed at the low point at the beginning of the trend ($388.87 on 6/28/2013 for AAPL)
  • Anchor point 2 is placed at the high point before a pullback ($434.87 on 7/18/2013 for AAPL)
  • Anchor point 3 is placed at the bottom of the pullback ($418.71 on 7/23/2013 for AAPL)

 

The final result looks something like the next chart (I kept the ascending triangle lines and overlaid the Fibonacci Extension tool).

 

Apple (AAPL) & a Fibonacci Extension Tool

 

The Fibonacci Extension tool gives a target for the current uptrend at $464.71 (the 100% indicator). You can see on the above chart that AAPL has poked above the 61.8% line. This means that AAPL has gone up 61.8% of the distance that the first uptrend went up (the distance between anchor point #1 and anchor point #2). AAPL looks ready to continue it’s climb to the 100% line next.

 

Now one question you may have is the placement of anchor point 2 on the above chart. Why did I not use the high of $423.29 on 7/5/2013 for anchor point 2 and then use the low of $410.38 on 7/9/2013 for anchor point 3? Let’s see how that looks on the next chart.

 

 

Apple (AAPL) & Another Fibonacci Extension Estimate

 

So by using the second set of anchor points, you can see that AAPL has already reached it’s target (the 100% line). But also notice how AAPL has broke through that target. Once a target line is broken convincingly though, most times the stock will reach for the next target line as I am projecting from the first example (where AAPL has poked above the 61.8% line and is heading towards the next target line, or the 100% line).

The next target line on the above chart is the 161.8% line, or $466.07. Wow, that number is pretty close to the 100% line from the first Fibonacci Extension estimate which was $464.71.

 

After examining both placements of the Fibonacci Extension tool, I prefer the first set of pivot points from above (where the 100% line is $464.71).  The reason I prefer that set of pivot points is due to the gap-up that occurred on 7/24/2013. Gap-ups (as well as gap-downs) are powerful moves and tend to happen in the middle of uptrends.

 

While I am long-term bullish AAPL, I do intend on selling my remaining AAPL shares around the $465 area and will then look to repurchase those shares on any subsequent, significant pullbacks. Before selling at $465 though, we will re-examine the chart at that time to look for any clues about the uptrend continuing past $465ish. $465ish also represents the top from Apples’s first attempt to resume an uptrend (it is also where the red trend line starts for the ascending triangle).

 

Disclosure: As noted above, I intend on selling the remaining 50% of my AAPL position around the $465 area. I will then look to repurchase those shares during any subsequent pullbacks. Let’s first look to sell these shares around $465.

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