On the daily chart, the Bollinger bands (red), a measure of standard deviation around price, have moved within the borders of the Keltner channel (green), a measure of standard deviation around average true range. This condition is one definition of a volatility squeeze and signals that a stock is in a state of extreme consolidation -- and that the subsequent breakout or breakdown could be volatile.
The theory is based on the premise that stock prices move between periods of high volatility and low volatility. Apple saw a high level of volatility in July and August and then moderated to the narrow range it is in this month.
The suggestion that a subsequent break will be to the upside when the stock has been trending lower below a declining 50-day moving average is based on recent price and money flow indications. The stochastics oscillator, a measure of price momentum, has been tracking higher and moved above its centerline, and the vortex indicator, which is designed to signal changes in trend, is making a bullish crossover. While overall volume is down, which is to be expected during periods of consolidation, the Chaikin money flow reading shows that the majority of that volume has been to the buy side.
It is impossible to know the magnitude or the duration of the move, and there is no certainty it will be to the upside, but traders should look to a break above the $112.50 level as a speculative long opportunity and be willing to take a quick profit or loss.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.