Apple returned to momentum status following a positive reaction to its last earnings released on July 26. The stock has been above its 200-day simple moving average since July 18 and has been above a "golden cross" since Sept. 2 when the 50-day simple moving average surged above its 200-day simple moving average.
A "golden cross" is a technical signal that indicates that higher prices lie ahead. Apple closed at $107.73 on Sept. 2 and set its 2016 intraday high of $118.69 on Oct. 11.
The weekly chart shows how shares of Apple stabilized around its 200-week simple moving average between the week of April 29 and the week of July 1, when this "reversion to the mean" was at $93.31. The weekly chart has been positive but overbought since the week of Sept. 16.
TheStreet's Jim Cramer, whose Action Alerts PLUS portfolio holds Apple, has long said this is a stock you own, not trade. Cramer and co-manager Jack Mohr recently wrote that content has become "a key area where the company has the potential to disrupt while preserving and potentially emboldening current iPhone loyalty. In fact, while we have emphasized the company's shifting focus toward Services -- i.e., its App ecosystem and the carousel nature of its product bundling -- the potential foray into TV/video content, oft discussed yet rarely understood, appears to be gaining traction."
Analysts expect Apple to earn $1.65 a share when it reports quarterly results after the close Tuesday. The focus will be on sales data for the iPhone 7, particularly in the wake of the problems of Samsung's (SSNLF) Note 7. Two days after reporting earnings, Apple will hold an event to tout the launch of a new Mac computer, attempting to benefit from a rebound in desktop computing.
Apple remains a value stock in addition to being a momentum stock. Apple has a 2018 estimated price to earnings ratio of 11.59 with a dividend yield of 2.06%.
Here's the daily chart for Apple.
Courtesy of MetaStock Xenith
Apple closed Monday at $117.65, up 11.8% year to date and in bull market territory 31.5% above its 2016 low of $89.47 set on May 12. The stock is also in correction territory 12.6% below its all-time intraday high of $134.54 set on April 28, 2015.
The daily chart for Apple shows the Fibonacci retracement levels of the decline from the all-time high of $134.54 set on April 28, 2015 to the May 12 low of $89.47. Since setting its low Apple began to regain momentum.
Step one was the rebound to the 23.6% retracement of $100.13 on May 26. This level proved to be a resistance as the stock dipped to its post-Brexit vote low of $91.50 on June 27. The stock followed the market higher returning to its 23.6% retracement of $100.13 on July 21.
Step two was a dip to the 50-day simple moving average (then at $97.02) on July 26 in anticipation of a difficult earnings report. Instead, there was a positive reaction to earnings, and the stock gapped higher on July 27 to its 200-day simple moving average then at $103.72. Once the stock trended above its 200-day SMA the 38.2% retracement of $106.71 became a magnet between Aug. 5 and Sept.8 before the stock dipped towards its 200-day SMA then at $102.22 on Sept. 10.
Step three was the formation of the "golden cross" on Sept. 2 where the 50-day simple moving average rose above the 200-day simple moving average with the close that day of $107.73. The hype of the launch of the iPhone 7 on Sept. 9 proved the power of the "golden cross" as the stock quickly rose to its 50% retracement of $112.02 on Sept. 14. This level held as support between Sept. 23 and Sept. 30 followed by a rally to its 2016 intraday high of $118.69 on Oct. 11.
Step four has the stock is positioned around its 61.8% retracement of $117.34, which has been a magnet since Oct. 11, including Monday.
Here's the weekly chart for Apple.
Courtesy of MetaStock Xenith
The weekly chart shows a red line through the price bars, which is the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.
The weekly chart for Apple is positive but overbought with the stock above its key weekly moving average of $113.52 and well above its 200-week simple moving average of $95.32. Weekly momentum is projected to rise to 89.08 this week up from 87.64 on Oct. 21, becoming more overbought above the 80.00 threshold.
Investors looking to buy shares of Apple should do so on weakness to $110.22, which remains a key level on technical charts until the end of 2016. This week's pivot is $118.93. Investors looking to reduce holdings should consider selling strength to $122.91, which is a key level until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.