Will Apple Stock Reverse Course Or Continue In This Pattern? Here's What's Happening

Apple Inc. AAPL was leading the market higher at the open Wednesday, rising about 0.7% toward the median line of a descending channel pattern.

The tech giant has been trading in descending channel patterns on the daily chart, making lower lows and lower highs between two parallel trendlines. The pattern is bearish for the short term but can be bullish down the road.

For bearish traders, the "trend is your friend" (until it's not) and the stock is likely to continue downwards. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.

Bullish traders will want to watch for a break up from the upper descending trendline, on high volume, for an entry. When a stock breaks up from a descending channel, it's a powerful reversal signal and indicates a rally is likely in the cards.

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The Apple Chart: The Cupertino, California-based company fell into a downtrend within a descending channel pattern on Aug. 16. Although the stock has been making a fairly consistent series of lower highs and lower lows, there’s a possibility that Tuesday’s low-of-day is a higher low, which could negate the current downtrend.

• On Wednesday, Apple was printing an inside bar pattern on the daily chart, with all the price action taking place within Tuesday’s trading range. The pattern is neutral in this case because although Apple’s overall trend is lower, the fact that Apple didn’t form a lower low on Tuesday is bullish.
• Traders and investors can watch for Apple to break up or down from Tuesday’s mother bar on higher-than-average volume to indicate future direction. If the stock breaks up above Tuesday’s high-of-day, the stock may find resistance at the upper descending trendline of the channel pattern.
• If Apple breaks down from the inside bar, bullish traders can watch for the stock to print a bullish reversal candlestick, such as a doji or hammer candlestick, near the lower trendline of the channel for a possible entry.
• Apple has resistance above at $139.96 and $143.51 and support below at $137.33 and $132.93.

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