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Forget the China Deal, Apple's Chart Says It's a Buy
Although many Apple watchers had figured out that this was basically a done deal thanks to information discovered on a website owned by a China Mobile subsidiary, which had recently started taking preorders on the Apple iPhone 5S and 5C, confirmation of the news was a welcome development.
From a sheer size perspective, the China Mobile deal is fantastic for Apple, as it allows the stalwart personal technology company the opportunity to sell iPhones to China Mobile's 740 million subscribers. To put that in context, consider that the number of China Mobile subscribers is more than double the entire U.S. population. If Apple can capture even a modest percentage of China Mobile users, we are talking about hundreds of millions of iPhones sold.
In Thursday trade, AAPL shares were up only about 1%; however, the relatively modest move higher should not be read as the market not liking this deal. As previously mentioned, the market had already expected the deal was going down, and that's a big reason why AAPL has spiked nearly 9% in the past month.
What I think is the far more important reason why Apple shares have been so resurgent of late doesn't have a lot to do, at least not directly, with the headlines. Rather, the stock is benefitting from some good, old-fashioned bullish technicals.
The chart below shows that the stock formed a solid base at the $520 level from mid-October through mid-November. That forming of a four-week base gave traders some confidence that AAPL would hold up at that level, and that the move above the 50-day and 200-day moving averages in September was sustainable.
Next came a host of bullish holiday shopping forecasts for Apple, including positive comments from Cantor Fitzgerald's Brian White, who wrote that Apple is "best positioned to benefit from this holiday season" due to the company's broad product refresh in its iPad, iPhone and MacBook products.
The holiday buzz, along with what I suspect is a realization that Wall Street simply became way too bearish on AAPL this summer, was the combination the smart money needed to send the stock breaking out of that $520 trading level and past the $570 mark.
I suspect that if Apple enjoys strong holiday sales, then its current price will be just a stop along the road back toward the $700 mark.
Recommended Trade Setup:
-- Buy AAPL at the market price
-- Set stop-loss at $514, approximately 10% below the current price
-- Set initial price target at $700 for a potential 23% profit in three months