Chart Review: Apple Teeters on Critical Support Ahead of Earnings, And the Next Sprint Higher?

Apr.17.11 | About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) investors have had it relatively easy since the late 2008/early 2009 lows. As long as they were not stopped out (or panicked out) of positions in the May, 2010 “flash crash”, patience has paid off. Every stumble in the stock has marked a mere pause in the persistent stair-wise step upward to ever higher prices. Breaks in the 50-day moving average (DMA) have been temporary, and the upward slope of the 200DMA has guided the trend “up and to the right.”

As Apple approaches another much anticipated earnings date (after the close April 20), the stock is teetering on a critical support line. Previous history tells us that this juncture will provide the next launching pad on the way to fresh all-time highs. However, the amount of selling in the stock on down days in 2011 suggests distribution is occurring. That is, sellers are using liquidity to exit positions.

Apple retests critical support ahead of earnings

Apple retests critical support ahead of earnings

The distribution in the stock is AAPL’s largest negative, and it tilts the current advantage toward the bears. Note that this distribution started before the announcement earlier this month that the Powershares QQQ ETF will rebalance its index, sending AAPL’s out-sized share from 20% to about 12%. Of course, it is always possible that some big players got early word of the move and began their downsizing early.

This next chart uses a weekly perspective to show how Apple has steadily marched higher for two years. Apple has had an impressive run. In hindsight, the periodic stumbles in the stock have simply constructed rest stops. The sprints in between have been short but sweet, sharp and profitable. In other words, if Apple survives this latest rest stop (and earnings), traders will have a ripe opportunity to garner rapid gains.


Apple's steady march higher has consisted of brief sprints and long rest stops

*All charts created using TeleChart:

As I have stated on my “T2108 Resource Page” (my key technical indicator for the overall market), I am assuming negative earnings reactions will dominate the positive ones. This applies to AAPL as well. I do not think traders and investors will be (initially) forgiving. If the stock sells-off post-earnings, look for the 200DMA to serve as the next line of defense for buyers. If THAT breaks, then all bets are off. Apple has not broken its 200DMA during the entire two-year rally. Even the flash crash bounced off this critical support of the uptrend.

If AAPL has a positive earnings reaction or it recovers quickly from a post-earnings swoon, I will next assume that the seeds have been planted for the stock’s next sprint.

Be careful out there!

Disclosure: No positions