I hear you asking: Should I buy Apple stock now or wait for the price to come down? In fact Apple share price has already dropped significantly since the all-time high of $700. Apple stock was trading yesterday for about $430 a share. Thus, some traders might consider that price tag somewhat cheap for an Apple share. But is it cheap enough to invest in Apple nowadays?
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Based on technical analysis, my reply would be affirmative. Apple stock has been trending upwards since at least 2009 after a corrective drop in 2008 – during the financial meltdown in US. Apple shares increased their value by 600% with minor pullbacks and retracements along the way. During the last couple of months we witness the first real retracement; a retracement that seems to have found support at the 38.2% Fibonacci retracement level according to the monthly stock graph.
If traders are going to decide whether they should buy Apple stock or not based on the monthly graph and particularly the Fibonacci levels, they should use the 61.8% level to set their stop loss order. In that case though, we would be talking of long-term investors, who would be patient enough to hold their position for months ahead. Unless Apple stock plunges 30% or gains more than 50% in March, it’s safe to assume that neither the stop loss nor the profit target at $700 would be hit this month.
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So we open the weekly Apple graph. Here the Fibonacci retracement level coincides with a previous credible resistance level. You have heard it before: resistance levels convert into support levels when penetrated. Another investment advice concerning technical analysis is that a signal’s strength is improved when multiple indicators coincide. Consider the hammer candlestick, which was printed last week and you have 3 bullish reversal signals right there.
Should I buy Apple stock using the weekly graph?
If you are looking to profit from a big move, no. Go back to the monthly graph and check your investment once a week. You’ll be fine. But if you are aiming for a 20% gain that would push Apple stock price to the latest support level (now resistance), the weekly stock graph would be the appropriate chart to be trading on. Yet, for a more detailed view of the market, let’s go down to the daily graph.
Here traders can pinpoint their entry level and set a tight stop loss. Not to mention that there can be additional bullish patterns that can further improve your prediction. For example, note the 3 candlesticks at $420 which resembles the Bullish Stick Sandwich, a bullish reversal pattern. A case can be made that the first profit target must be set at $480, given the strong resistance and the gap fill.
The analysis above shows that there are reasons for someone to buy Apple stock these days. The stop loss would protect traders from risking more than their capital can afford. And if indeed they buy the low of a retracement, the question “should I buy Apple stock” will quickly transform into “when should I sell Apple stock”!
Disclaimer: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.