Is Apple Ready for Another Breakout?

by Darrin Donnelly on October 4, 2010

Click on chart to enlarge.

Click on chart to enlarge.

Despite the market indexes closing higher on Friday, several Darvas stocks look to be entering into a consolidation period. 

As mentioned previously, this is actually good news for Darvas traders as these stocks have shot up so far and so fast that they are now over-extended and priced WAY above support levels.  Nicolas Darvas taught us that support levels are crucial to the Darvas System’s success because they are what we use to establish our sell-stops. 

One particular Darvas stock that pulled back last week after a big run was AAPL.  This is the first pullback for AAPL since it broke into new-high territory at $279.11 (note the green arrow on the chart that accompanies this article). 

But here’s a question for traders to consider: is AAPL entering a healthy consolidation period or is it on the verge of another breakout higher?

Some traders would look at AAPL’s daily chart and see a “Bull Flag” pattern.  Such chart readers would see an upward breakout of the downward trend established last week as a new buy point for AAPL. 

Personally, I’ve found Bull Flags to be one of those chart patterns that looks great “after the fact,” but can’t always be trusted during the base-building process. 

In the case of AAPL, I could just as easily see it forming a classic Darvas Box or a Rounded Base as it consolidates here. 

Darvas traders may want to pyramid into a current position if AAPL breaks back above the $290 level on big volume, but I wouldn’t INITIATE a position up here. 

Until AAPL clearly gives us a clear new support level, where should current stops be placed?

That answer is in the current issue of Darvas Trader PRO, which you can try out for 30 days by clicking here.

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* Portions of this article appeared in the October 3, 2010 issue of Darvas Trader PRO.  You can try Darvas Trader PRO risk-free for 30 days by clicking here.

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