It is a long time since I wrote on anything investing. But the recent performance of Apple is worth noting. With their latest earning blowing away expectations, the stock is on a rally. When the average tech stock has returned some 1% for the year, Apple is already up about 14%. The uptrend started mid-April in 2014. By this time, Apple had put behind the disaster of the Apple maps behind and at last readied the iPhone 6 for release.With the iPhone 5s just being a stop-gap arrangement before the bigger screen release, investors were just waiting for the real deal. Around that time, there was the 7:1 announcement and that helped Apple broke from a cup-n-handle formation, though not technically exact. The handle was below the 14% limit per IBD’s William O’Neal specification. In any case, since then it has been a nice uptrend. With the Jan ’15 earning release, there has been no looking back. Before the earnings, I remember Apple pulling back to as low as $106. This helped form a flat base while it almost looks like a tripe-W.
If you are new to investing or know nothing about it, you would have gotten all lost by now reading above. If you are still reading, then you are curious definitely. The one key thing to note is the word base. A base is a correction where a stock forms some sort of shape on its chart. This can look like a cup-n-handle or a flat or a W. The stock can be in a base for any amount of time, typically 6-9 months. A base can be as short as 5-6 weeks. During this phase, all the nay-sayers sell the stock and the demand dries out. Then those who are positive on the stock, start to buy in because the price looks cheap and they wait. They wait for the company to produce some results or news that will change the momentum. This is when a stock can potentially ‘break-out’ or ‘break-down’. A break-out is when the price goes up significantly compared to that in the base on more than average volume. a 200% increase from daily average volume is a good indication that there is enough conviction for the large institutional investors to start buying in. This in turn can raise the price of the stock. Of course, the stock could have gone down too on higher volume, in which case it is time to get out. If you follow rules of the IBD/CANSLIM methodology, you take losses once yours reaches 7%.
Apple broke out of a flat base with a buying point of around 119.80 last week. Now it is at 126+ today. I would expect it to go further until the next earnings release which is in April this year. There will be some profit taking along the way i.e., the price can dip down now and then, but the uptrend will continue. If we hear more positive news about Apple Pay, inroads into the corporate world or Apple-car, etc the trend can stay positive. Carl Icahn, who is estimating Apple to be $220, started buying Apple a year back and has been bullish on it ever since. Know it from a man who is known as a successful investor who has made billions – keep watching the charts.