What's The Next Stop For Apple's Stock?

Sep.20.11 | About: Apple Inc. (AAPL)

By Bryan McCormick

Apple's stock (NASDAQ:AAPL) had been more or less moribund until last week, when new estimates on industry wide tablet shipments suggested that the iPad's market share remained strong at around 68 percent. Although that was a drop in percentage, the number of tablets shipped was nearly 50 percent higher than some prior estimates.

The stock rose strongly on those numbers and has been a primary reason that the Nasdaq 100 has relatively outperformed the other indexes. As we can see on the weekly chart below, the stock Monday hit a lifetime high above $404.50--AAPL's top intraday price, though it did trade higher in the post-market after the company's last earnings release.

Now that the stock has broken out, how can we estimate where price could go?

For that I have drawn in a linear regression line on the chart, from the start of the move up in March 2009 through to March 2010, then projected the line to the right. As you can see the stock has consistently clung to the regression line. The two major exceptions are the downturn that ended in September 2010 and a similar pattern this year, where the stock began rebounding in June.

The big spike down in May 2010 is the residue from the "flash crash," which we can and should ignore for trend analysis.

The regression line can help us do two things. The first is to monitor the overall health of the trend. Second, we can use it for forecasting.

Based on the move today, if the short-term momentum stays positive the stock could hit the $412 area or higher this week. It is also possible the shares will power above the regression line for a while. It has done that several times in the past.

Traders should note that price usually returns to the line and follows it rather closely. Based on that behavior, AAPL could make it to the $440 area by year's end as long as the trend remains intact.

AAPL was up 1.74 percent--or $6.95--to trade at $407.45 Monday afternoon despite the broader market sell-off.

AAPLClick to enlarge

(Chart data provided by Thomson Reuters)