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Is Apple a Buy at New Highs and Ahead of Earnings?

Apple is set to report earnings on Wednesday and is hitting new highs ahead of the print. Can the stock deliver again for the bulls?

The answer to the headline seems obvious - is Apple  (AAPL) - Get Apple Inc. Report a buy at new highs and ahead of earnings?

Many would say “no.” While that may seem like the obvious answer, it's not necessarily a slam dunk.

Plenty of investors are rushing to compare our current stock market to 1999, throwing around terms like “bubble” and “margin debt” like pit traders threw around “buy” and “sell” back in the earlier years of trading.

Without getting into a full-blown lecture on the state of the stock market, I would simply argue that there are pockets of euphoria, but the market as a whole isn’t in a bubble.

That’s not to say the market can’t or shouldn’t pull back - it would be healthy - but when looking at a name like Apple I don’t necessarily see euphoric price action.

Apple is up just 3% from its September high, while the Nasdaq is up 12.5%. Heck, the Russell 2000 is up more than 35% from its summer high in August as investors have had a risk-on appetite lately.

FAANG stocks in general have been sluggish over the past four to seven months - short of Alphabet  (GOOGL.) - Get Alphabet Inc. Report

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Trading Apple

Daily chart of Apple stock.

Daily chart of Apple stock.

With the exception of the last month, does Apple’s lack of participation since September guarantee a post-earnings rally later week? Of course not.

On Monday, Apple shares burst to new highs, rallying 4.3% at the highs. Aside from a gap-up open in the Nasdaq, a price-target boost to $175 from $160 at Wedbush helped give it a lift.

Apple is now working on its fifth straight daily gain and is hitting all-time highs at a time where the market is a bit extended and with earnings on deck on Wednesday. From here, I would love to see it consolidate above $138.

This was the blow-off top high from September, as well as the high from December. Consolidating above it validates this prior resistance level as possible support. The more time Apple spends above this mark, the better.

On the upside, I’m watching the $146 to $146.50 area. That’s the 161.8% extension from the recent range (with the extensions drawn in blue).

If it can rally beyond this level, look for a test of $150 and the 138.2% extension from the larger range. Above that puts $160 in play, a key extension zone from both ranges.

While I would love to see a dip to the $138 level and the 10-day moving average hold as support, it’s not the end of the world if it doesn’t. Should Apple correct down to the 21-day and 10-week moving averages near $131 to $132, it would seem likely healthy price action to me, assuming it acts as support.