It’s all over the news; ‘Apple down 25% from its 2012 highs.’ Buy and sell recommendations from brokers around the world based on the latest quarterly, weekly, daily or 5 minute iPad sales estimations are enough to confuse even the best of us. I am here to offer a pure high probability technical trade idea on Apple Inc (Nasdaq: AAPL), where clearly defined risk keeps emotions at bay.
A brief look at Apple’s four-year chart gives the recent price correction some context. The stock’s orderly incline from 2009 – 2011 started going vertical in 2012, moving the stock price further and further away from its four year up-trend. While some are already calling an end to Apple as a company and others still have their $1000 price target for 2013, to me this most recent consolidation is for now simply a mean-reverting move. The four year up-trending channel currently spans from around $470 on the lower end to roughly $540 on the upper end. With last week’s continued weakness, the stock finally broke back into this longer-standing up-trend, where a bounce is a likely scenario.
The following chart has three points which also point to potential near-term support: 1) The area between $520 and $530 has served as support for most of this year and again held last Friday. 2) Volume on Friday at just over 45 million shares was almost double its 15 day average daily volume. 3) Momentum as measured by the slow stochastics indicator points to an oversold condition. While oversold/overbought conditions can remain for sometime, combined with the other two points it is more trustworthy of an indicator.
Lastly and for my approach most importantly, last Friday’s intraday trading action in Apple Inc (Nasdaq: AAPL) has left a picture perfect hammer candlestick on the daily chart, which on Monday was confirmed with meaningful follow-through buying. A strong hammer at an important support level, coupled with oversold conditions is a high probability setup for a long-side try for me. As a target I am spotting the mid $590s, which are close enough for a re-test of the 200 day simple moving average from underneath.
And remember, given the heavy weighting that Apple Inc (Nasdaq: AAPL) has in the major indices, a long-side setup in this stock is essentially a bullish trade on technology, i.e. the Nasdaq 100 (NDX) as well as the broader market most likely the S&P 500.