A Quick Daily and Weekly View of Apple AAPL at New Highs

Sep 22, 2010: 9:23 AM CST

Shares of Apple Inc (AAPL) broke to new highs this week after rallying the last three weeks in a row in a breakout that investors and traders have been expecting was due.

Let’s take a quick look at the structure of the breakout and see what the charts have to say about the stock – and what levels are important to watch for confirmation.

First, the larger-structure Weekly Chart:

Apple has proven to be one of those “Short at your own risk” stocks, and a great lesson in how simple trend analysis can keep  you out of trouble and positioned on the right side of a powerful trend in motion.

Ever since the early 2009 low, Apple shares rose in a stable upward trajectory supported by the 20 week EMA (green).

As long as the price remained above the 20 week EMA, it was a buy, particularly on low-risk pullbacks to the support of the weekly average.

That was then – this is now.  2010 was not as kind to shares of Apple, as the stock traded in a $30 range for most of the year ($240 as support; $270 as resistance).

Remember, price is king and we turn to price insights first.  We then look to confirming indicators – like volume – to give us clues about the health or continued strength of a price move in motion.

While price has been rising, those indicators have been falling, particularly volume, which spiked for the months after April and declined steadily until present.

A classic analysis shows that volume is not necessarily ‘confirming’ this rally – but as long as price continues rising, that doesn’t seem to matter.  It’s a caution sign, but not a “panic” sign by any means.

Now let’s drop to the daily chart for the recent breakout picture:

In prior posts, I’ve been showing the sideways trading range and the reference levels to watch in anticipation of a price breakout.

The $240 level has been a good ‘buy’ area and the $265/$270 area has been a good “take profits” area, but price cannot remain rangebound forever – it has to break out of the range (though up or down, we do not know which until it occurs).

The breakout has been to the upside and shares have responded with the expected initial ‘breakout’ rally as anticipated.

Notice how shares paused initially at $265, shattered above it, then moved sharply up to the next ‘test’ level at $275, paused, then recently shattered above that too.

The short-term key will be the breakout price at $278/$280 for a bullish ‘support-shelf’ reference, and as long as the stock remains above this level, it is a buy candidate with bullish expectations (from a chart and trend perspective).

Any move under $275 would be expected to find at least initial support/bounce at $265.

And for upside targets, $300 seems reasonable and would probably give shares at least a temporary pause as buyers take profits… but will probably get right back into the stock if the price rises much above $300, which is why it would be a temporary price level to watch.

Continue watching this breakout for signs of strength or weakness, and watch what happens as we (or if we) trade up to the $300 per share level.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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