Is Apple Ready to Join the Party?

For millions of "Apple-heads," the precipitous drop in the company's stock price late last year was nothing if not apocalyptic. MoneyShow's Tom Aspray takes a technical look at how it's doing now against the wider stock market rally.

Stocks put in strong performance Thursday as the S&P 500 closed above the closing high from September 14 with the highest close since December 2007. Volume was the best of the past four days and once again the market internals were strong.

It was also noteworthy that the Dow Jones Transportation Average closed well above the 2012 highs. It is now just below the next major resistance at 5627, which corresponds to the July 2011 highs.

Financial stocks were strong with the Select Sector SPDR Financial (XLF) up 1.24%. The Select Sector SPDR Health Care (XLV) made further new all-time highs as the sector broke out of its 12-year trading range last year.

The relative performance analysis of these two sectors confirms that they are still market leading sectors. The technology sector continues to lag the broader market as the Select Sector SPDR Technology (XLK) is up 2.4% this year, compared to a 3.4% gain by the Spyder Trust (SPY).

The stock market rally has turned the focus more on Apple Inc. (AAPL), which is down 1.6% so far in 2013. A look at the technical picture suggests that it will not take much of a rally for AAPL to complete its daily bottom formation.

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Chart Analysis: The Spyder Trust (SPY) broke out of its six trading range Thursday indicating that the correction was now over.

• There is next resistance at the September high of $148.11and then at $150.
  
• If the rally from the late December lows equals the rally from the November lows to the December highs, the 100% target is at $150.42.
  
• This is very close to the first-quarter R1 pivot resistance at $150.58.
  
• The NYSE Advance/Decline pulled back to its WMA at the end of December, but has moved to convincing new highs in 2013.
  
• This leading action is consistent with further gains in the stock market.
  
• The McClellan oscillator has resumed its uptrend after dropping back to -112 at the end of 2012. It is still well below overbought levels.
  
• There is minor support now at $145 with the rising 20-day EMA at $144.12.
  

The weekly chart of Apple Inc. (AAPL) shows that after reaching $705.07 and the quarterly R1 resistance in September, it has dropped over 25%.

• AAPL is now trying to hold the 50% Fibonacci retracement support at $508.40, which was calculated from the 2011 lows at $310.50.
  
• If it is decisively broken, the 61.8% support is at $462.16 and the quarterly S1 support is at $463.35.
  
• The weekly starc- band was exceeded in November and the monthly starc- band is at $489 for January.
  
• The relative performance did confirm the September highs, line d, but has since dropped below the uptrend, line f,
  
• The RS line is now back to stronger support, line e, that goes back to the 2011 highs.
  
• The weekly on-balance volume (OBV) also confirmed the all-time highs, line g, before dropping below its uptrend (line h).
  
• The OBV is still also below its WMA.
  
• The monthly technical studies (not shown) also confirmed the 2012 highs.
  

NEXT PAGE: AAPL Ready to Rally?

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The daily chart of Apple Inc. (AAPL) shows a potential bottom formation, line a, as prices have been flat over the past few days.

• The 20-day EMA is at $530 and a close above this level will be the first indication of a stronger rally.
  
• There is additional resistance now at $555, which if overcome should signal a rally to the quarterly pivot at $574.84.
  
• The 38% Fibonacci retracement resistance is a bit higher at $578.26 with the 50% resistance at $602.72.
  
• The daily relative performance has made lower lows this week and it is still below its WMA.
  
• There is key resistance at line c and then at the downtrend, line b.
  
• Volume did pick up sharply Wednesday and the OBV is now testing its WMA and the downtrend, line d.
  
• A strong close on over 42 million shares would support the bullish case.
  

What it Means: The market's resiliency this week is likely making some of the stock market bears a bit more nervous. Still many are still focused on the debt ceiling or the negative outlook for the Eurozone, which is keeping them out of the stock market. It may take a rally back to the 1500 level on the S&P 500 to get their attention.

Certainly a rally in Apple Inc. (AAPL) would also help sway some of the bears. As indicated above, the daily studies have not yet given buy signals but AAPL is one of those stocks that can move into the buy mode only after a $30-$40 one-day gain. Though I generally do not advocate buying before there are clear buy signals, the risk on buying after a breakout is likely to be too high. Concentrating on risk is one of the rules I think traders must follow in 2013.

How to Profit: Those who were not already long from the put selling strategy recommended on November 12 were advised by Twitter on December 31 and again yesterday to buy at $527.66 or better with a stop at $498.44. Yesterday, AAPL traded as low as $518 after the tweet and it closed at $523.51.