PreMarket Prep Stock Of The Day: Apple

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

Investors are always looking for the next big move in an issue. On some occasions, it's a string of consecutive days in which an issue will move in the same direction. However, those runs come to an end and consolidate as investors digest the recent price action and determine their next course of action.

After a fabulous rally in Apple Inc. AAPL in early June to its all-time high on July 15 ($150), the issue is doing just that.

Catalysts For The Big Rally: A few different factors were at work that instigated Apple's unusual $25 rally out of its long consolidation period.

First of all, being the top component in the S&P 500 index, the issue was long for the ride as the index frequently made new all-time highs.

More importantly, stocks in major uptrends such as Apple, tend to rally ahead of their earnings reports and for good reason. Since the first quarter of 2013, Apple has only missed EPS in one quarter (second quarter of 2016) and it was a small one. There have been a few more on the sales side, but nothing too severe.

Many of the buyers ahead of the report may not even take the issue through the report (you never know how the Street will respond), booking profits a few days ahead of the release.

The Peak: In this instance, Apple made its all-time high eight sessions ahead of the report, but did trade very close to that level ($149 handle) on July 26 and July 27. Therefore, investors playing the pre-earnings run were offered an exit print, better than the price action on the day following the substantial EPS and sales beat.

Price Action Day After Report: Apple releases its earnings report after the close on each designated day. The trading range on the day of the report was $145.55-$149.21 and ended the session at $146.77.

Despite the massive beat, the issue opened lower ($144.81 versus $146.77) retreated to $142.54, and peaked just above the close at $146.77. For the session, it was lower by $1.79 with a close of $144.98. Based on the price action, the Street wasn't all that impressed with the earnings or guidance.

The Trading Range: Interestingly, the current tight trading range began to form on the day following the report. While the S&P 500 index has grinded higher, Apple's stock is stuck in a tight range.

Wednesday's session marks the 10th in a row Apple has been in an uncharacteristic $3.94 trading range from $144.11 to $148.07. A majority of the closes during this 10-day span have flanked $146, which is actually where the issue is training as 2:45 p.m. ET.

Moving Forward: The post-earning stalemate between the bulls and bears in Apple will not go on forever. However, it should be noted that Apple’s malaise in May and June persisted for five weeks before it was resolved to the upside.

Investors positioning themselves for a breakout to the upside may want to wait for a series of closes over $148 to confirm. On the other hand, investors wanting to lock in profits or short the issue may want for a failure of Apple to hold $144 on a closing basis.

Posted In: TechnicalsTrading Ideas