(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Apple Inc. (AAPL) shares may have put in a short-term bottom based on technical analysis, while the options market suggests that the upside potential for the price of Apple remains around $165. Together, these two factors suggests the stock may just now be range-bound from now until more details emerge surrounding the iPhone 8 and iPhone X.

Using the 5-minute chart, the stock appears to have put in a bottom around the $150 level after successfully filling a gap created when the company last reported quarterly results. Additionally, a long straddle options strategy set to expire on January 19, 2018, suggests the potential for the stock to trade 11 percent up or down from its closing price of $150 a share. Accordingly, it appears Apple could trade in a range of $150 to $165 a share over the next few weeks, giving the stock a chance to consolidate. 

Finding The Bottom




The 5-minute chart above shows that the stock appears to have put in a double bottom while filling the gap created after Apple reported its third-quarter earnings in August 2017. This suggests that for now, the stock may find a bounce, and could make an attempt to head toward the $160 level.

Additionally, as the stock price bottomed, volume began to surge higher into the close, suggesting traders were buying in to the close of trading on Monday. It is worth noting that Apple's longer-term trend is still directionally bullish using a trend line that formed in July 2016. 




Limited Upside Potential

The options market is pricing in more volatility for the stock as well. Implied volatility in an article published on September 21 was near 23.5 percent. It has now risen to almost 24.5 based on the $150 strike price set to expire on January 19, 2018.

The long straddle, a strategy of buying both the puts and calls, suggest the stock could go up or down by about 11 percent from the $150 strike price. That puts the stock in a range of $133.50 to $166.50, meaning Apple needs to trade above or below the range for the trade to be profitable. 

In a previous Investopedia article, the range cited was $135.50 to $164.50, indicating the range has widened. This suggests there is more uncertainty about the future price of Apple. (See: Apple Could Fall By 10 Percent Based On Options.)

(Interactive Brokers)

A Range of $150 to $165

When we combine the options market and technical analysis, we can infer that Apple shares are unlikely to move above the previous highs the stock saw before the iPhone event around $165 based on options, while the technicals suggest a floor in the stock around $150. That gives the stock a range of roughly $15, and could allow the stock to consolidate over the coming weeks. As that consolidation happens, the options market should start tightening up, potentially lifting the lower bound. However, should the stock rise, the upper limit should remain in place or fall slightly. 

Over the long term, Apple has proven it is an unstoppable force. And every time investors doubted the company, it usually came back stronger than before. Until proven otherwise, it is hard to say the same thing won't happen again. However, that doesn't mean the market won't test the will of Apple investors and make life difficult along the way. 


Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.