Tuesday, May 26, 2009

AAPL's Second Deep Cup and Handle

That's what I'm seeing. This morning's headfake (dipping down briefly to fool bears) didn't fake Apple (AAPL). It is currently up $6 (5%) and trading at $129, vastly outperforming Nasdaq. From the looks of it, for the first time in several weeks, the trading volume seems set to increase.

The last time I traded AAPL long was exactly one year ago, when just about everyone was excited with the prospect of a massive "cup and handle" formation on Nasdaq index, and many of its components, particularly AAPL. Then the handle started to get longer and droopier, and the rest is sad history. (The market decline, in my opinion, started in early June last year, not October.)

Let's take a look at AAPL's 2 year weekly chart. The first cup and handle that people were so excited about last year now looks more like a V. The second cup and handle, the one I'm seeing now, is slightly better shaped (just because it took longer to form). Since the current low undercut the previous low, (if I remember what I read...) this would be considered the first base. The handle high is $133.50, only slightly above 50% retracement from the low to the beginning of the cup (August 08). That is a bit low for my liking but not too bad either considering how the general market had crashed.

If the handle break occurs, it could go on to fill the gap from September 08 (September?? Oooh I just noticed that AAPL crashed in September 08, not October when the general market crashed). My target would be about $160, if that's the case.

AAPL's Point and Figure chart has a dreamy, almost hallucinatory target of $231, by the way. It has a very peculiar formation, like a flag pole and a tiny pennant flying.

What I didn't like and still don't like about lots of big-cap Nasdaq stocks is that their volume on the way up since March 6 low is very subdued. I've heard arguments that since the stronger hands are buying these stocks, you don't need volume. Maybe, up till now. In order to break out of the seemingly constructive formation (cup and handle), the stock needs more volume. The proverbial "money on the sideline" has to come in.

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