AAPLTalk Weekend, 4/25/14 Market Close: Of Course the Technicals are ‘Bullish’, but is That the End of the Story?

Earnings were pretty good overall. The news of the increased buyback authorization and 7-for-1 share split seemed well-received.

And AAPL had its best open-to-closing price week in dollar terms … probably ever.

This is the part where technical traders, starting Wednesday after-hours or sometime Thursday, start saying stuff like “AAPL technicals are bullish on higher volume” and non-technical types scratch their heads, roll their eyes, or both. Way to make your bold call after the fact, they might scoff. Hey, how about you send me a text that it’s raining five minutes after it already happened, Carnac the Magnificent.

I sympathize with their skepticism. I should know – I used to be a non-technical type. And hey, I still do fundamentals, more than ever!

My grand blog post on why I think technicals matter may never happen, but here’s a much shorter version of why I employ them (despite being an absolute amateur who probably won’t claim any market expertise other than Portfolio Self-Flagellation in the coming years):

Technicals provide context to price action, and replace emotion with measurements, trendlines and statistics.

How’s that relevant to this post? Well, now we have a case where technicals can replace bullish emotion with a more objective look at the price action and a timeframe or two. Call it a check against overenthusiasm. The funny thing? Technicals could be hinting at something even more bullish than just this week’s post-earnings jump.***

Daily chart:

aapl-daily-042514close-2

It’s been a long, hard road for AAPL longs over the past 4-5 months. But AAPL finally has some bounce back in its step. A 40-point boost obviously can (and did) make MACD-h, Bollinger Bands, and oscillators all turn bullish.

We have two bullish reads based on patterns, one bullish read based on what I consider a key trendline, and the usual reasons for caution.

Inverted head and shoulders-like formation

The first is the inverted head and shoulders-esque formation, which actually looks a bit like an inverted head and camel humps, but close enough. Notice how the pattern “simmered” for about twice as long as the Aug-Oct 2013 pattern. Also notable is the top-to-bottom trading range, which was already pretty broad for the older pattern (close to 70 points) yet moreso for the just-resolved pattern (close to 80 points).

That aside, the other big deal is the measured move. I’d say it’s pretty fair to put the move at 60 points (or more) based on neckline measurements. Based on a trigger around 530, that would put the measured move target (yes, more suggestion than absolute truth) around 590.

Descending channel breakout

The second bullish pattern read, which is a little harder to see, is the breakout from descending channel.

Yes, it’s more accurate to call it a “descending channel with panic selling to island reversal interlude”, which sounds a bit like an inverted head and shoulders. So if you’re skeptical this is a separate pattern, that’s fine.

On the other hand, Apple has had three very methodical moves on the daily chart since August. And all three did have consolidation-type channels containing the majority of the price action (orange parallel channel is fairly illustrative). So I’m thinking this is an independent pattern that bolsters the bullish case.

Coincidentally, with the previous move (Nov-Dec 2013) spanning from slightly below 515 to 575, we have another 60-ish point measured move in play.

Macro trendline hold and strong bounce therefrom

Remember that red trendline hold I mentioned a few updates ago? That red trendline has proven highly instructive since AAPL bottomed out in the 380s. You could call it AAPL’s current base macro uptrend line, and the current narrative is a combination of AAPL “holding where it had to” and gaining considerable momentum thereafter.

Short-term concerns

Short-term “concerns” include:

– AAPL needing to digest the recent gains;

– the fact that AAPL created a price gap (which no experienced AAPL bull should be comfortable with now);

– near-term resistance at 575-ish that AAPL has to break through to see new trend/countertrend highs;

– and the fact that AAPL is floating above the Bollinger Bands and EMA-8, which some take as a sign that AAPL will need to “come back to Earth” somewhat, or at least “pause” to let the BBs and/or moving averages “catch up”.

But the overall story the daily chart’s been telling since at least August 2013 remains positive and strong. It’s deliberate, with plenty of breaks in the action for AAPL to rest, regain momentum, and continue along a more sustainable uptrend. AAPL still has much to “prove” but it’s in the strongest position it’s been in months.

Now to wrap up with a look at the weekly chart.

Weekly chart:

aapl-weekly-042514close

– What was it, 12 straight weeks of negative MACD-h? That’s actually about half as long as AAPL’s precipitous fall from 705.

– Bollinger Bands compressed to an “implied price range” of as low as 57-ish points (second-to-most-recent candle). That doesn’t seem like tremendous volatility compression, but the last time bandwidth was narrower on this timeframe was July 2011, if I’m reading it right. The relative volatility compression which ended up in AAPL’s run from 380-ish to 575-ish had bandwidths of around 70 points, for reference.

– Better yet, the candle before this past week’s rocket launch? A pretty strong hammer candle.

– Through it all, the weekly chart never looked all that bad. And the current uptrend never seriously breached the 38.2% Fibonacci retrace level. That’s quite powerful if AAPL continues to move higher, and gets bears/people on the sidelines thinking that AAPL might not look back.

– Maybe it’s too soon, maybe it’s too tinfoil, but I’ll put it out there anyway. Could the move all the way from the late June 2013 double bottom possibly be triggering a multi-month bull flag? Of course, the weekly timeframe makes measuring very imprecise, but AAPL has had a measured move of close to 190 points, followed by a mostly controlled flag/descending channel that took a good 4+ months to begin a breakout move. Now I’m not gonna call a target price of 720 or something, but considering all the good news, it’s not a bad time to reclaim some momo stock mojo.

Isn’t it nice to be an AAPL bull when good fundamentals, technicals and sentiment align? Trading is never without risk, especially given the Ukraine situation and some toppy/bearish signals in the indices, but AAPL currently has a very nice daily and weekly chart amongst a sea of…not-so-good ones. And what do you know? With its below-S&P valuation, steadily increasing dividends, a soon-to-be “affordable” per-share price, metric tons of cash, and $44B in buyback authorization to employ, AAPL might have become one of those must-go destinations as investors and traders alike take a flight to safety.

See you on the virtual trading floor Monday, and best of luck.

 

***Don’t forget about my disclaimers, DYODD, endless market uncertainty, the potential for intervening events that do or don’t directly impact Apple, and the never-ending if-then nature of technicals/price action, where all of those “if/thens” can be compressed into cycles of minutes, sometimes even seconds.

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