4 Key Levels to Watch for Apple Inc. (AAPL)

Analyzing the technical outlook for new DJIA member Apple Inc. (AAPL)

Apr 6, 2015 at 10:33 AM
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The following is a reprint of the market commentary from the April 2015 edition of The Option Advisor, published on March 26. For more information or to subscribe to The Option Advisor, click here.

Apple Inc. (AAPL), which joined the storied ranks of the Dow Jones Industrial Average (DJIA) in mid-March, is in the midst of a notable technical lull. The stock has been primarily range-bound between the $120 and $130 levels for over a month, and Trade-Alert calculates AAPL's 60-day historical volatility at 27.6% -- a reading that ranks below 99% of others taken over the past 52 weeks.

From a longer-term perspective, AAPL appears to have earned this breather. The shares have gained about 63% in the past year, and in February managed to break out above round-number pressure in the $120 area.

And hopes remain high for AAPL's stock to continue its role as an unstoppable juggernaut on the charts. Analysts have been busy hiking their price targets during this six-week stagnation, with no fewer than 15 of these bullish notes hitting the wires (there was even one from Berenberg, which -- while reiterating a "sell" rating -- upped its price target to a still-miserly $85). Cantor Fitzgerald issued the boldest call, as its new 12-month target of $180 represents a prediction that AAPL's market cap will reach $1 trillion.

Barron's has also gotten in on the action, with a Feb. 21 feature titled "Apple Shares Could Return 25% in a Year." The article posed the question, "Might Apple now be topping out again?" -- then immediately dismissed this hypothetical as "unlikely," and predicted a "rise to $160 over the next year."

Not everyone is placing their chips on AAPL breaking out to the upside, however. The equity's front-month, gamma-weighted Schaeffer's put/call open interest ratio (SOIR) stands at 1.38, indicating that puts outnumber calls among near-the-money strikes in the April series of options. Likewise, data from the major options exchanges suggests speculators have recently shown a healthier-than-usual appetite for bearish puts, relative to bullish calls.

In the same vein, short interest on AAPL rose a net 7.6% over the past two reporting periods, with the number of bearish bets turning higher from a near four-year low. So, even bearing in mind that some of the AAPL put players could be longs seeking a short-term hedge, it appears there's plenty of skepticism beginning to creep in.

In fairness, it's very tempting to call a top on AAPL right now -- a DJIA anointment, the launch of the $10,000 gold Apple Watch, and a $1 trillion market-cap prediction, all within the space of a few weeks? Not to mention an outpouring of bullish analyst notes, and a rumored entry into the electric car market ... and all of this coinciding with flattish price action in the stock. On its face, it's the kind of frothiness contrarian case studies are made of.

But as I reminded my Chart of the Week* subscribers in a recent AAPL commentary, it's never a good idea to short the strongest stocks -- a description that still applies to AAPL, regardless of the current sideways trend. In fact, this name has been a particularly challenging one for contrarians to trade over the years, as the characteristically high levels of optimism have, more often than not, been matched by a strong showing on the fundamental and technical fronts.

With that in mind, I've set forth below some of the crucial technical levels to watch for AAPL during the short term. It's impossible to predict with any certainty right now whether the stock's next major move will be higher or lower -- but AAPL's behavior around these key price points should provide some valuable clues in the coming weeks:

  • $133.60 = all-time high
  • $132.46 = +20% year-to-date return
  • $121.42 = +10% YTD gain
  • $120.24 = 10% correction from all-time high

Daily Chart of AAPL since March 2014

*For more information about Chart of the Week, or to subscribe, please contact your Schaeffer's consultant.


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