Momentum Pushing AAPL Higher

Dear Reader,

On Friday we looked at a Daily Price Chart of LRN, noting that the stock’s On Balance Volume was sloping up which confirmed the stock’s strong uptrend.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Apple Inc., stock symbol: AAPL.

Before breaking down AAPL’s MACD chart let’s first review what products and services the company offers.

Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services.

MACD Indicator confirms Price Momentum

The AAPL daily price chart below shows that AAPL is in a price uptrend as the 24/52 day MACD line (black line) is above the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Buy’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

Buy AAPL Stock

As long as the 24/52 Day MACD line remains above the 18-Day EMA, the stock is more likely to keep trading at new highs in the coming days and weeks.

Since AAPL’s bullish run is likely to continue, the stock should be purchased.

Our initial price target for AAPL stock is 172.26 per share.

69.3% Profit Potential for AAPL Option

Now, since AAPL’s 24/52 Day MACD is trading above the 18-Day EMA, this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a AAPL call option purchase.

The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat AAPL price to a 12.5% increase.

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following AAPL option example, we used the 1% Rule to select the AAPL option strike price but out of fairness to our paid option service subscribers we don’t list the strike price used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for AAPL on 7/22/2022 before commissions.

Trade with Higher Accuracy

When you use the 1% Rule to select an AAPL in-the-money option strike price, AAPL stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if AAPL stock is flat at 162.51 at option expiration, it will only result in a 1.7% loss for the AAPL option compared to a 100% loss for an at-the-money or out-of-the-money call option.

Using the 1% Rule to select an option strike price can result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.

The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks.

The prices and returns represented below were calculated based on the current stock and option pricing for AAPL on 7/29/2022 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if AAPL stock increases 5.0% at option expiration to 170.64 (circled), the call option would make 33.8% before commission.

If AAPL stock increases 10.0% at option expiration to 178.76 (circled), the call option would make 69.3% before commission and outperform the stock return nearly 7 to 1*.

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify winning trades just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck’s Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

Trade High Priced Stocks for $350 With Less Risk

One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, Microsoft or Apple for as little as $350. With an option spread you can control 100 shares of Microsoft for $350. If you were to purchase 100 shares of Microsoft at current prices it would cost about $26,000. With the stock purchase you are risking $26,000 but with a Microsoft option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.

Chuck’s $3,000 Trading Scholarship

I don’t want you to miss a single opportunity to potentially reach your goals. That’s why I’d like to offer you a scholarship of the full $3,000 Enrollment Fee of my exclusive Inner Circle Trading Service.

I want you to follow in my footsteps and succeed beyond your wildest dreams, so please call Brad in my office at 1-866-661-5664 or 1-310-647-5664 and get started today!

You can also CLICK HERE to schedule a call now!

Wishing You the Best in Investing Success,