AAPL 7/9/2013 – The $386 Bottom Held
The previous Apple update had two different Elliott Wave possibilities that I laid out for Apple. I then wrapped up the analysis as follows:
“So what does the above analysis tell us? Well, just like every Elliott wave structure, there are always numerous possibilities of how the formation can continue to unfold. It is important to watch the next key level of $385.10 and how Apple reacts down at this level to try and determine which of the above possibilities has a greater chance of happening. This will be unfolding over the next several weeks, so do not be quick to make a purchase above $385.10 after a 1 or 2 day hold above the amount unless you want to take on increased risk. Wait for several days or the start of significant moves to the upside on heavier than normal volume.”
Apple’s recent chart action definitely has a positive twist to it. So let’s look at a recent 1 year daily candlestick chart for Apple that reflects $385.10 as the bottom (or the first Elliott Wave possibility on the prior Apple update).
The next chart is a close-up of the last 3 months. I’ve indicated a few noteworthy items of a positive nature on the chart itself…..take a look.
To recap the above chart – on June 28, 2013 Apple dropped in the morning to try and test the prior low of $385.10 – Apple only got as low as $388.87 that day and then rebounded on heavier than normal volume. The next day produced a gap-up that has yet to be closed, so this is something to always keep in the back of your mind. And the engulfing candle on heavier volume than the prior 2 down days is also a positive sign. For those not familiar with Bullish and Bearish Engulfing Candlesticks, click here to learn about them and then scroll down to “Engulfing Patterns”. Apple’s candlestick is a bullish engulfing pattern, which is a reversal pattern of the couple day downtrend Apple was in. And since it came in heavier than normal volume, it adds more emphasis to the candlestick pattern.
From a visual perspective, the chart seems to be forming a triangle pattern of some sort, possibly an ascending triangle to act as a reversal pattern. Apple could also be working on a new 5 wave impulse wave to the upside. I feel like the ascending triangle pattern is more likely. If that is the case, then here is the scenario that should play out. Any pullbacks on lower than normal volume could be seen as a long-term buying opportunity as well as an entry point for a swing trade to the top of the ascending triangle (approximately $440, or a 5% gain).
If you are long-term bullish Apple like I am , then a good trading strategy could be to purchase 50% of your anticipated allocation of Apple on any pullbacks. Ride that purchase to the top of the ascending triangle and sell half of that position as Apple should then pull back if it is indeed a ascending triangle pattern that is forming. The rest of the move to the top and the next move coming down should both look like zig-zag patterns as I’ve indicated on the next chart. The zig-zag pattern to the bottom of the triangle would close the gap up that was noted on the above chart. At the bottom of the triangle is the area to repurchase sold shares as well as the other 50% of your anticipated allotment to Apple as long as the bottom trend line of the triangle holds as support. Watch for any false breakout to either the upside or the downside.
Also, any extended break outside of the ascending triangle lines could indicate a change of patterns. As I previously mentioned above, a 5 wave impulse wave to the upside is another possible chart pattern that is forming. If this is the pattern that is forming rather than the ascending triangle, then the move would look like a “breakout” from the ascending triangle as seen next chart.
Consider the above swing trading strategy I described I will be using if you are long term bullish Apple like I am. I conclude this article from my Apple laptop and will check in again soon.
Disclosure: I currently own no shares in Apple but may initiate a “long” position by purchasing shares within the next 48 hours.
Edited Disclosure as of 7/10/2013 – I am currently long Apple with share purchases today at an average of $421.43 and will be looking to sell these shares in the $440 range.