AAPL Surges and Impresses

May 4, 2008: 9:52 AM CST

Apple Inc (AAPL) continued its winning streak into May after rising from $120 in March to $180 in May. It’s rare when we see a stock carve out the pattern Apple has, and so we need to look at this pattern to learn from it now.

After plunging almost 50% in early 2008, price built a clean base, created a U-Turn Buy (or saucer, or rounded bottom) before surging higher in two equal waves separated by a shallow pullback into key support.

There were a key techncial (visual/charting) entries that got you into this stock, otherwise it was just “buy high, feel odd about it, sell higher.

The first was a technical break above the base which was confirmed by a key positive momentum divergence. This entry allowed you to play for a large target (betting on a reversal) and came as price broke above $130.

It may have been more ‘comfortable’ however to wait for a clean break of the falling 50 period moving average, which occurred just beneath $140.

Most trend and swing traders prefer to enter on a ‘pullback’ in price, and I highlighted this ‘perfect pullback’ opportunity when it occurred as price formed a doji at the 50% Fibonacci retracement then pulled back cleanly to the rising 20 period moving average.

After that, there really weren’t clean technical entries and if you bought at the clean, low-risk levels, it was your job to ‘hold on’ for as long as possible as price continued to surge higher each and every day.

Price is on its way possibly to test all-time highs, and if so, that would be an extremely positive sign for the broader indexes.

Let’s look quickly at how Apple (AAPL) respected its Fibonacci Retracement Levels:

Price made no stopping at the 38% retracement (near $150) but actually did falter and reverse (for an entry signal) at the 50% retracement. The Doji candle (which almost was a ‘shooting star’) gave you a clue that price was likely to test support via a rising moving average.

Price successfully tested the average, traders responded by buying (so many people are watching and trading this stock) and then price continued with multiple gaps up to its 61% retracement. This retracement level gave a long reversal day (falling about $10) but the next two days caused price to surge above this level as well.

Apple has cleared its classic (or popular) Fibonacci retracement and the new trend is clearly and cleanly up.

Adam Hewison at the Market Club does a great job of following this stock and analyzing it for you, so check them out for deeper commentary.

Congratulations to those of you who have been trading this stock successfully, and for those who have been on the sidelines, analyze the stock and price patterns deeper to see what lessons you can learn from this amazing and emerging giant.

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