With all eyes set on Apple (AAPL) Tuesday for its big event, there's a lot riding on the success of its latest product launch. Most of the details are known: There will be new iPhones, including a $1,000 model, and a new Apple Watch. Wall Street's reaction will give us a good read as to how impressed investors are—with some key pivot points to keep an eye on.
The first level to watch is $164, which is upside resistance and where the stock stalled in the beginning of September. Shares are already having an incredible year, and the more they rally, the more risk there is in a sell-off if Tuesday's event does not exceed expectations. If Apple breaks above $164, that's a good indication that the market was very impressed.
When looking at downside support, Friday’s low at $159 is the first big test. Breaking through $159 would indicate that this is a sell-on-the news event, and the next test would most likely be $155, which is where Apple found support three times in the month of August.
There is one glaring bearish signal ahead of Tuesday's product launch, which is a negative divergence between relative strength and price. What this means is that for every new high Apple made over the last few weeks, the relative strength (as measured by the Relative Strength Index) made a lower high. When this negative divergence occurs, it can often mean that the stock is not as strong as the price would make you believe. In turn, this would indicate that a downside move may be imminent. With a risky event such as Tuesday's product release, any disappointment and the stock is more likely to fall given this internal weakness in shares.
Looking at shares from a more medium-term perspective, the stock has been trading in an uptrend channel since late June. Support in this channel is at $159 as well. Should $159 hold, then the channel will stay intact, and the stock will continue to have bullish momentum. Furthermore, this channel makes the $159 level from Friday even more important as it represents both short- and medium-term support.
The Bottom Line
With Apple set to announce new iPhones and an updated version of its Apple Watch, the stock is at a major pivot point. Should shares fall below $159, a short-term and medium-term support level, they could be subject to further downside. But if that level holds and it breaks out above $164, the stock could be in line for even more gains.
For more insights into trading strategies, please visit OptionMillionaires.com.