Apple reported earnings on the evening of Thursday, February 2, and the stock subsequently jumped 2.44% on Friday.
The stock has rallied more than 20% since the start of the year, putting it in the middle of a large descending channel extending back to the start of 2022.
Most stocks, including APPL, fell in 2022. That created a descending channel for Apple – a pattern where the stock moves lower within a defined band or channel.
The last time Apple Inc (APPL) formed this pattern in its stock price, it ended up running 120% over the next two years. The channel, occurring from mid-2015 to mid-2016, lasted a little over a year before the price broke higher and rallied more than 120% over the next two years.
How the 2022/2023 channel compares:
It is just over one year long (similar to what occurred in 2016).
The price is moving up toward the top of the channel.
The first major price drop in the pattern was 28% (in 2016 it was 30%).
An analyst from SafeTradeBinaryOptions.com commented, “Don’t expect history to repeat exactly, but there is a pattern playing out that we’ve seen before. It provides a context for how the stock price may unfold going forward. The price is moving within a channel. If it can break higher out of the channel that signals a potentially major advance in the stock price is forthcoming. Essentially, the uptrend is continuing.”
Here is how we can expect this scenario to play out, based on current predictions:
The stock is in a long-term uptrend. It has had many pullbacks and price declines that ended with the price resuming its upward trajectory.
For this pattern to play out, the price needs to reach the top of the channel near $168. The stock currently trades near $154.50.
Even if the price were to advance 80% from the top of the channel, less than the 120% rally following the 2016 breakout, that puts the price target near $300.
This presents opportunities for both short-term and long-term traders to capitalize on.
Longer-term investors could enter near current levels, although with the price still in the channel expect some choppiness, even a move back toward the low of the channel.
Another option is to wait for the breakout with the price moving above $168. Then, wait for a pullback that stays outside this channel. Buy if the price starts moving up again. This type of price action shows the price is out of the channel and resuming its uptrend.
In 2016, the price rallied through the channel highs, pulled back touching the top of the channel, and then commenced a more than two-year rally with only minor pullbacks (about 15% or less) along the way. It wasn’t until 2018 that AAPL experienced a more significant decline of 30%.
Nothing is certain, and at this point, AAPL has not broken out of the channel. However, investors should be on the alert if it does.