Weekly Bow Tie Ribbon forming on Apple AAPL Sigma Chart

An update to our Weekly (and Daily) Sigma Band Chart of Apple (AAPL) reveals another tight volatility compression or “Bow Tie” Pattern.

What does this mean and what can we expect once this pattern resolves?

Simple – let’s take a look:

For a bit of background, see my recent S&P 500 Sigma Band chart for definitions and explanations.

Main idea – the chart above is an expanded Bollinger Band Chart with standard deviation bands – also called “Sigma Bands” highlighting four standard deviations above and beneath the mean or 20 day (or week) moving average.

Sigma Charts help us quantify Volatility in a more professional manner than saying “price is moving a lot.”

Sigma Charts help us locate target levels to play for in a trade and also entry spots to trigger a trade (when price touches or moves away from a key level).

They can also be helpful in locating stop-losses for open positions.

These charts also help us visualize the Volatility Cycle, which states that price alternates between periods of low and high volatility.

Low volatility periods are highlighted by a “Bow Tie” or Squeeze Effect in the Bands as I’ve highlighted in blue.

Generally, a period of HIGH volatility emerges when a stock breaks free from a trading range from a LOW volatility environment.

Right now, we’re seeing a period of low volatility compression – which could extend – ahead of a likely breakout one way or the other for Apple (AAPL) shares.

Here’s the Daily Chart to plan short-term trading targets/set-ups:

Buyers have supported the stock – good buying spots – into the $124.50 level through most of 2015.

At the moment, this level is roughly the 2nd Standard Deviation (Sigma) beneath a falling (blue) average.

I highlighted a possible “Bullish Bounce” upward price pathway but also balanced that support level with a potential “Bearish Breakdown” pathway should Apple shares fall beneath support.

Note also two periods of sharp upside bounces followed by equally sharp declines – almost like an Inverted “V.”

Whatever other indicators or strategies you’re using, be sure to pinpoint these levels and the message from Volatility – which is low at the moment – for trading Apple shares.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).