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After falling from grace in the fourth quarter of 2012, Apple (NASDAQ: AAPL) began settling into a bottoming process in the spring of 2013, which was completed in late June with a higher low versus the April low.
The stock has since worked steadily higher with great respect for its technical levels. And after successfully overcoming critical multi-month lateral resistance this week, it could be clear sailing into the low $500s.
During most of 2012, whenever I discussed trading AAPL, the majority of comments I received said I was "clueless" since the stock was a clear buy and hold into infinity. At some point during the first half of 2013, the tone of the comments did the proverbial 180, as the stock was surely doomed.
This is typical of the sell low, buy high crowd -- bitterness rather than acceptance when faced with losses. But regardless of how tricky AAPL has been for the medium-term investor, the technicals both in the near-term and medium-term time frames have worked and continue to do so.
On the multi-year chart below, note how the stock sliced through its 2009 uptrend line in January, which gave way to the next broader support area between $360 and $430. After a good rally off the April lows, the stock found lateral resistance at the May highs near $465, which became a crucial level of resistance to overcome.
From there, AAPL retested its April lows in late June; however, this retest qualified as a marginally higher low that came on lighter volume compared to the April low. And in the first week of July, AAPL displayed follow-through buying.
Why is a higher low on low volume important? Because, in this case, it confirmed that most, if not all, of the players long the stock that wanted to get out here had done so in April, thus alleviating further selling pressure.
Moving on to the daily chart below, the rally off the higher low made in June is easier to see.
AAPL has managed to work itself higher in a stair-step manner, breaking down one resistance level after another. The $430 area served as a mini level of support and resistance several times during the April-to-July period, but it was finally overcome in late July with the post-earnings gap up. From there, while not all smooth sailing, the stock managed to climb to the $465 area, which as discussed above, had acted as important resistance in March and May.
After a few days of consolidating around that area, AAPL staged a major breakout, aided by Carl Icahn, and shot past $465. The stock followed with a test of the $500 area, where I would expect the psychological round number to force a little consolidation.
Beyond that, however, AAPL still looks to have room to sniff above the $500 mark and toward $520, where the air would again get thin for medium-term investors.
Recommended Trade Setup:
-- Buy AAPL at $490 or lower-- Set stop-loss at $480-- Set initial price target at $515 for a potential 5% gain in 4-8 weeks
While the sector is hanging on by a thread, shares of this company have already started breaking down.
Wall Street's elite use it to stack the deck in their favor, but there's nothing stopping you from doing it too.
The way I see it, either the fundamental story or the technical breakout should be enough for us to capture a potential 17.6% gain in the next few months.