Triple Timeframing the Breakout to New Highs in Apple AAPL

Sep 20, 2011: 9:46 AM CST

If you were paying attention to the deteriorating economic headlines, you might not have noticed a bright spot among the bearish headlines.

Apple (AAPL) shares broke this week to new lifetime highs after giving a “triangle” breakout buy signal on the Daily Chart with a supportive structure from the higher timeframes.

Let’s take a look at the Three Timeframes in Apple (AAPL) and learn a few strategies along the way:

When looking to trade a stock on a chart basis, it’s often best to start with the ‘bigger picture’ monthly chart, mainly to asses the dominant trend and any obvious prior support/resistance (price) levels.

Most traders don’t trade off the monthly chart, but it serves as a backdrop to guide strategies they’ll employ on the lower timeframes.

Without getting too technical (yet), Apple remains in a powerful, month-over-month uptrend and each minor pullback (down months) set-up a buying opportunity on the break above price resistance.

Price is overextended from its rising 20 month EMA, but this structure is common in powerful stocks and should NOT be a reason to fade (short) an overextended stocks – stocks become overextended for a reason and it’s usually best not to fight that reason.

With the monthly structure above, let’s fine-tune the chart by viewing the current weekly chart – with lessons:

The first principle of price behavior is that “Trends – once established – have greater odds of continuity than of reversal.”  Apple is one of the many examples that demonstrate this foundational principle.

Simple Strategy #1:  Do NOT fight (fade) Trends

New and developing traders do best using Pro-Trend strategies, such as buying retracements to rising support (EMAs or Trendlines).

Other developing traders – and professionals – like to buy breakouts from prior resistance or consolidation patterns (like rectangles or triangles).

We can see in the Weekly Chart how this works.  Retracement strategies generally trigger a buy-signal as price pulls back (retraces) either to a rising moving average or hand-drawn trendline.

Traders place and trail a stop under the EMA or trendline and hold firm until price forms a sell-signal at a higher price, such as a break of a rising trendline or reversal candle that ‘pokes’ through the upper Bollinger Band.

Breakout strategies require a bit more confidence, as a trader seeks to buy shares (or add to positions) on a price breakthrough above a prior resistance area.

Traders place stops under the breakout price (not too close) and similarly hold for a sell-signal above.

You can see the entries/triggers of both strategies as seen best on the weekly chart (this works for swing traders).

Let’s now step into the Daily Chart for a clearer picture of what just happened and how we got there:

I added “Buy” labels for both of the recent daily chart breakouts:

The first triggered in early July on a break from a “Falling Rectangle” or “Bull Flag” pattern (weekly) and the second triggered recently in September on a breakthrough above the Triangle pattern above.  For late-comers, Apple also triggered a breakout buy signal above $400.

Notice how the recent Triangle on the daily chart corresponded with a simple retracement to the rising 20 week EMA on the weekly chart – thus the recent retracement to the $360 level was a retracement buy signal on the Weekly Chart which was confirmed as a breakout buy signal on the Daily Chart (triangle).

By combining timeframes like this, you can spot a potential signal on a higher frame and then confirm it – or fine-tune entry – with a lower frame.  It takes a bit more work to find these opportunities, but they’re often worth it (allowing for a better entry and tighter stop).

While there’s more you can learn as educational examples from the charts above, I wanted to focus on the lessons for breakout and retracement strategies in a powerful trending stock, along with the importance of combining timeframes to fine-tune the chart picture.

Corey Rosenbloom, CMT
Afraid to Trade.com

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5 Comments

5 Responses to “Triple Timeframing the Breakout to New Highs in Apple AAPL”

  1. Tuesday links: efficient pricing | Abnormal Returns Says:

    […] A look back at your opportunities to get into Apple.  (Afraid to Trade) […]

  2. catcorp2000 Says:

    I know this is crazy, but I'm shorting it here at 420. Good news already baked in , but I'm not sure it will all be good news.

  3. Advil Says:

    You were right

  4. Corey Rosenbloom, CMT Says:

    Risky but very good trade into the close.  Very good work there.

    I was going to add in the post that the daily triangle – under classic projections – has a target into the $425 region ($40 height added to the $385 breakout = $425) which seems to have worked well at least as a short term retracement/pivot today.

  5. Saludo Vencedores Says:

    So, when to sell?