Here’s How to Treat Apple’s Pullback
Right now is the perfect time to dust off those buy lists.
We are in what will likely go down as a short-term pullback in the broader stock market. The S&P 500 has closed lower for five straight weeks, dropping nearly 10%, while Apple (AAPL), our focus today, has declined for three straight weeks and is trading 12% below its highs.
As the market starts to position for a rally out of the dip, it’s time to target names at the top of your buy list.
Apple is one of those stocks.
With double-digit revenue growth, its best iPhone sales quarter ever after nearly two decades in the market and a whopping $66.91B in cash and cash equivalents on the balance sheet, fundamental investors still love this stock.
Today, we’ll dive into the key technical levels to watch and why traders are loving Apple as well.
Reading the Key Levels on AAPL
Apple is trading well off its recent highs, which can make some of the weaker hands eager to sell. Patience is key here. The price chart shows the stock is positioned to make a big run based on consolidating price action.
It’s coiling up, getting ready to launch sharply in one direction or another.
Let’s break it down.
Source: Sigmanomics.com
With a converging support line (green) and resistance line (red) on the price chart, prices are coiling up in a typical wedge price pattern. The wedge formation tells us to expect a massive move when one of these levels finally gives way.
That’s the trigger traders are eyeing, the big broad move that could take shares sharply higher, or tumbling lower.
But the bullishness in this chart comes what is not showing up in the price action. It’s from the Awesome Oscillator, the momentum indicator at the bottom of the chart. The rising support line on the oscillator stands out compared to the nearly flat support line in price action. That’s what you are looking for. A divergence between price and the indicator to get ahead of how traders are playing it.
With the oscillator below the 0 line, a strong short-term buy signal is when it crosses above that. After a strong start to the week, that crossover could occur any day now.
This aligns with a bullish reading in the Sigmanomics 28-Day Forecast as well.
The 28-Day Sigmanomics forecast just entered the buy zone with a bullish signal targeting price action movements over the next month. Seven different strategy-based models are largely aligned on the potential for upside in Apple’s stock.
With an expected price zone of roughly $246.54 to $266.06 brackets today’s levels. This gives traders a clearly defined area where the model expects this consolidation that we are seeing on the chart to occur, and the levels that could indicate a breakout.
Trade Apple's Pullback Accordingly
We’ve laid out the bull case from the charts. The algo models, price action and fundamentals are all tilting toward Apple heading higher out of this pullback.
You now have the key support and resistance levels on the price chart, plus the price zone from Sigmanomics expected zone as your risk-and-reward map.
What we want is a breakout.
You can position early for the potential rally, using the current support level as your line in the sand, or wait for the confirmed trend break. Either way, if the support fails or the forecast shifts to bearish, that’s your signal to step aside and wait for another high-probability opportunity.
Dave Calutan, MBA
With 10 years of extensive investing and trading experience across Global Financial Markets, including US and International Stocks, Indices, ETFs, Forex, Cryptocurrency, Derivatives (Options & Futures), and Commodities (e.g., Gold & Oil). As a testament to Dave's investment expertise, he has won the National Stock Trading Competition '18.
