The analysis of Todd Gordon, with TradingAnalysis.com, of AAPL stock was featured in a recent edition of CNBC's Trading Nation's Breakout Session. Shares of Apple Inc. (Nasdaq: AAPL) are up just over 20 percent over the past three months. After breaking out from a local high near $120, AAPL stock hasn't looked back. It currently trades near $139, just below its all-time high of $140.28.
Mr. Gordon currently sees a "set up" in AAPL, but cautioned that viewers must be aware of "two very powerful women" who have the potential to derail it: winter storm Stella, and Federal Reserve Chair Janet Yellen.
As Blasting News has previous reported, the Fed chair is widely expected to raise interest rates at a meeting of the Fed Open Market Committee that starts today. The trader stated that once the market gets through the "uncertainty" surrounding the two events, "it looks like the upside's in play."
AAPL shares trace 'hammer' pattern
As evidenced by AAPL's strong three-month performance, the stock is in a "nice uptrend" that has seen it "power" to new highs, last seen in 2015. With this as a backdrop, Todd Gordon focused viewers' attention on the past ten trading sessions. He noted the "hammer" candlestick chart pattern that AAPL stock formed on March 9. He detailed how the shares of Apple on the day were characterized by a sharp decline, followed by a rally that brought prices back near to the day's opening.
The market rejected lower prices.
The CNBC host noted that the sell off has had the technical effect of "clearing out" stop-loss orders Gordon described AAPL "selling interest" being "exhausted through $137." He elaborated that he sees a situation where "buyers are ready to regain control through $140." The host then entered a live option spread involving buying a weekly April 7 140 AAPL call and selling a weekly April 7 142 AAPL call.
With the 140 call's price at $1.76 and the 142 call's price at $1.03, Gordon noted that the net premium paid for the spread was $0.73 per share, or $73 for one option contract. The trade is characterized by a maximum loss of $73, plus commissions, and a maximum profit of $127.
Gordon details '50 percent premium give-back' risk-management rule
The technical analyst explained entering the trade with "confidence that sellers have been cleared out," as seemingly evidenced by the hammer formation. He encouraged viewers to sell the position if "$0.37 or $0.38 remains" in the spread. Gordon called this the "50 percent premium give-back rule."
AAPL stock's run has been fueled by Apple's consistent profit growth, which is forecast to continue, on a per share basis, by 7.6 percent this year and by 13.5 percent, next. At one time, Apple reported quarter after quarter of double- and triple- digit revenue and EPS growth, on a product pipeline of robustness rarely witnessed by capital markets.
Today, the Apple brand, the 20.73 percent profit margin, and the 34.69 percent return on equity, delivered by a company with a $730 billion market capitalization, is what appears to keep investors coming back for more. Today, AAPL stock has pulled back by $0.12, on lighter-than-average trading volume, action that would seem consistent with Mr. Gordon's bullish thesis.
