Apple Inc. (AAPL) beat quarterly earnings estimates when it reported results after the closing bell on April 30. The stock held its quarterly pivot at $272.81 on April 22, setting the stage for a positive reaction to earnings. The upside potential is to its monthly risky level at $337.57.

The iconic maker of iPhones is a component of the Dow Jones Industrial Average and beat earnings per share estimates for the 16th consecutive quarter. The stock is not cheap, as its P/E ratio is elevated at 23.82 with a puny dividend yield of 1.01%, according to Macrotrends.

Apple stock closed last week at $310.13, up 5.6% year to date and in bull market territory at 45.9% above its March 23 low of $212.61. The stock is 5.4% below its all-time intraday high of $327.85 set on Jan. 29.

The daily chart for Apple

Daily chart showing the share price performance of Apple Inc. (AAPL)
Refinitiv XENITH

The daily chart for Apple shows that the stock has been above a golden cross since May 9, 2019, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. The stock then traded below its 200-day simple moving average between May 10 and June 7 as a buying opportunity. This signal followed the stock to its all-time intraday high of $327.85 set on Jan. 29.

The stock gapped below its 50-day simple moving average at $305.74 on Feb. 24 and tested its semiannual value level at $262.02 on Feb. 28. After a solid rebound, Apple stock failed to hold $262.02 on March 13. The annual value level at $253.68 also failed to hold on March 17. The 200-day simple moving average failed at $248.61 on March 20, and the March 23 low was $212.61.

The rebound captured the 200-day simple moving average at $251.36 and the annual pivot at $253.68 on April 6. The semiannual pivot at $262.02 was vaulted on April 8, and the quarterly pivot at $272.81 was a magnet between April 13 and April 21. The stock popped above the 50-day simple moving average at $274.93 on April 23, setting the stage for the positive earnings report released on April 30.

The weekly chart for Apple

Weekly chart showing the share price performance of Apple Inc. (AAPL)
Refinitiv XENITH

The weekly chart for Apple is positive, with the stock above its five-week modified moving average of $283.25. The stock is well above its 200-week simple moving average, or reversion to the mean, at $183.60. Notice how tests of this moving average provided buying opportunities.

The 12 x 3 x 3 weekly slow stochastic reading rose to 57.36 last week, up from 50.19 on May 1. At the January high, this reading was 94.00, well above the 90.00 threshold putting the stock in an "inflating parabolic bubble" formation. The bubble popped to the March 23 low. At the January 2019 low, this reading was below 10.00, indicating that the stock was technically "too cheap to ignore."

Trading strategy: Buy Apple shares on weakness to the quarterly, semiannual, and annual value levels at $272.81, $262.02, and $253.68, respectively. Sell shares on strength to the monthly risky level at $337.57.

How to use my value levels and risky levels: The closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close, and the monthly level for May was established based upon the April 30 close. New weekly levels are calculated after the end of each week, and new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels remain in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.