How to Trade Apple (AAPL) Stock After Earnings

Apple Inc. (NASDAQ:AAPL) is set to report its next batch of earnings this week on Tuesday after the close of trading for the day. Needless to say it will be watched closely watched by investors and traders alike.

The saying goes that “every battle is won before it’s ever fought,” which to me as far as trading AAPL stock after earnings is concerned, means that one must gain perspective and map out a plan before the report so as to be prepared.

Importantly, considering Apple is the world’s largest stock by market capitalization it cannot be watched in isolation as it is a key part of many indices and ETFs, particularly of the Nasdaq 100 as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ), of which it currently makes up just about 11.5%.

In other words, when AAPL stock moves more than average, it will affect a good part of the stock market, at least for a short period of time.

AAPL Stock Charts

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

Starting off with the big picture view, we see that over the years, AAPL stock has moved higher in a well-defined up-trending channel, the lower end of which is also supported by the red 200 week simple moving average.

At the bottom of the chart, I added the weekly MACD momentum oscillator, which currently resides near an all-time overbought reading. The only other two times this momentum oscillator was at such lofty levels, in April 2012 and February 2015, the stock corrected nearly 20% in the case of 2012 and in the case of 2015 stopped going higher before ultimately correcting about 30%.

That is not to say AAPL stock is going to have a similarly bearish reaction in the near term this time around, but odds are that from a momentum perspective and where the stock currently trades in the ascending channel, AAPL stock’s intermediate term upside may be limited.

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Going into Tuesday’s earnings report, the options market is currently indicating a $6 move in either direction in AAPL stock immediately following the results.

On the daily chart, I drew a more intermediate-term ascending channel. AAPL currently trades around the middle part of this channel and from momentum perspective is also nowhere near overbought.

The two purple-dotted horizontals come in around $156 on the upside and $147 on the downside.

Quicker traders may be able to jump on AAPL stock from the long side if a move back above the $156 area takes hold following the earnings report. In that case a move up toward $165-$170 cannot be ruled out. At those levels however the stock would likely also quickly become notably overbought in the near to intermediate term.

Alternatively, should AAPL stock drop and hold below the $146 area and thus snap its blue 100-day simple moving average for the first time in a long time, it could ring in the beginning of a better corrective or consolidation move that sees the stock toward the low to mid $130’s in the intermediate term.

— Serge Berger

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Source: Investor Place