Tech giant Apple Inc. (AAPL) is setting up for a major breakout. The stock that's known for making the iconic iPhone and iPod devices has been coiling up in a classic wedge formation getting ready for a huge move.
This wedge formation has been in the making since last October, and it's foretelling a move of more than 40% in Apple stock. A wedge pattern is simple to spot. It has a downward sloping resistance line, in red, and an upward sloping support line, in green, making the wedge shape.
As the two lines converge, it means we are closer and closer to a breakout for the stock. Once one of the key levels are broken, we can calculate a price target by taking the height of the pattern. In this case, it's $90 per share. Based on Apple's current price, this is calling for a move of greater than 40% from current levels in one direction or the other.
When the key level is broken, the price tends to cover the expected move in half the time as the pattern took to form. That's why they are called breakouts – the stock will be moving rapidly.
The breakout could be any day now, as the price is testing the red resistance level at this moment. Or the resistance level could hold up and send the stock back down to the green support level.
Either way, the ultimate outcome of the wedge pattern for Apple is likely an upward breakout. Most wedge patterns are continuation patterns, which sees the stock continue the trend it was heading in before the pattern formed. For Apple, that trend has clearly been higher.
The Bottom Line
Apple stock is consolidating in a wedge pattern to set up a massive breakout. The expected move is at least 40% of the stock's current price. Understanding that wedge patterns are continuation patterns tells us to expect the breakout to be to the upside.