My previous hobby was online poker until it became illegal in the United States. I had to find a new hobby so I moved to trading stocks. It's a very simliar game to me. My point is: I read charts like I play poker. The way I play poker is by looking at all the possibilities and eliminating some using logic, then I go with the play that has the highest probability. It's not always going to be correct, believe me. Technical analysis is similar to poker because it is a game of probabilities. You will be wrong sometimes, just like I might be wrong in interpreting Apple as bullish. In this post I will show my thought process in interpreting Apple's stock chart and going long.
On Monday, I went long on Apple. I felt it was a contrarian play amongst a lot of traders, more were apt to take a short position. I saw where they were coming from at first glance; the daily chart looks bearish, that is what makes Apple's stock chart interesting. However, after taking apart the Weekly Daily and 60 minute chart, my opinion began to change. The first thing to take away is you need to gather as much possible information before making a decision, and I decided to look at Apple from all angles (from a chart perspective).
Apple's middle bollinger band has offered support for the last few weeks. Bollinger bands are interesting because stocks tend to bounce off them. Last time Apple was at its middle bollinger band, it bounced off it (shown in the chart). From this chart I take away that Apple is more than likely going to bounce from this band upward rather than hit the lower band. My bullish view on the market (I've shared my bullish charts on the site) as well as the earnings catalyst coming up led me to this conclusion.
Below is Apple's daily chart. This is where it gets interesting. It looks pretty bearish, trapped in a triangle that initially broke lower, thanks to the Market's reaction to Obamacare. However, I have highlighted clues to why I think it wasn't as bearish at it seemed:
- Apple was at strong resistance at $570. If Apple was going to break, it would break here.
-It had solid RSI support at 50.
-The bollinger bandwidth is at support. This low of bandwidth allows for prices to move fast. It's like pulling a rubberband all the way back, and once you let go prices skyrocket. I think the upcoming earnings report for the second quarter will work in the stock's favor; people will be excited to jump in after huge earnings beat last quarter.
I think the most clear perspective of why Apple is bullish is in the 60 minute chart (I have circled my entry price). There are some clear trend lines I have drawn. The main uptrend line broke, but I don't necessarily think that is as bearish as it seemed. I interpret this as Apple epically bouncing off its low in May, hitting strong resistance at $590, but the key to this is that it formed a bull channel shown in blue that I figured would bounce upward at strong support at $570 (if it wasn't going to do it there, it would probably drop quiet a bit). Note how well prices followed the bull channel (increased my chances of thinking this is a bull channel).
At the time of this post, I seem to be correct. I can be wrong, but I feel like this will hit $589 before it hits $565. Remember, technical analysis is just probabilities and nothing is for sure, and there are many different interpretations; not everyone sees the same thing looking at the charts. That is what makes technical analysis more art than science.
Note: I will reevaluate my position as prices near $589.