LONG APPLE: $100 BREAKOUT? LOW VOLUME, VOL DEMAND & MA CROSS
Updated
Apple looks poised for the $100-101 level breakout
Volume:
- Volume has traded below the quarterly average for the past 10 days, consistent with apples post-Brexit bull run. Low volume is a bullish signal as it indicates investors do not want to offer their apple risk at current prices and wish to hold for further upside before increasing their offering.
- In particular yesterday volume traded 40% lower than the quarterly average at 23m, this bodes well for a bull run/ $100 break-out today as if new buyers with to get on the apple curve they must bid the price higher (and through the $100 level).
Volatility:
Whilst volatility isn't at the 12m lows that we saw at the end of may, IV has certainly came off somewhat from the Brexit highs at 30%, to trade currently at 23.77. This too, along with the low volume has been consistent with apples post-brexit bull run and continues to provide investors the assurance they need to fund further liquidity and push apple higher/ through the $100-1 breakout level.
- Historical Vol trades close to implied at 20%, once again providing a close to ideal buying environment (ideally HV is higher than IV for buying conditions).
Option Demand:
- Apple end of week option demand looks healthy, with there being a huge skew for apple topside options e.g. the 25 delta calls (101) trade at 17,500 contracts, whilst the downside 25 delta puts (98.50) only trade at 9,000 contracts - almost half. Given this skew in upside demand, this could fuel a apple breakout at the 101 level. Even at 102 there are 20,000 demanded at 13 delta calls vs only 12,000 demanded for 13 delta downside puts - so all in all this excessive bullish option demand could have a magnet affect as these prices are reach in spot as they come in the money and are brought causing a cascade of fresh demand from the option space.
Technical
- Apple 2-days ago broke out its second key MA resistance, which was at 98.69 and the quarter MA, this too is a bullish sign and provides downside support if it be the case.
- Apple trades in the middle of its +/-2 standard deviation channels which means there is certainly room for a topside breakout without any probability prejudice that may occur if it was close to the +2 SD channel which provides strong resistance - the +2 12m SD channel trades at approx 107 - this is a clear target for the apple breakout if it materialises.
Market sentiment:
- As we know the past 2wks have been strong risk-on sentiment with SP and DJ setting new highs by 1-2+%, though Nasdaq has lagged new highs but nonetheless broke-out from the 4600 resistance and has given tech stocks a fresh lease of life.
- Also Microsoft outperformed earnings expectations which no doubt will help give investors confidence about adding more apple to their portfolios or adding fresh positions going into apple earnings next week, since the two have revenue streams closely linked - Microsoft traded up 4% in post market yesterday, and in pre-market trades up at new highs of 56 - 5.44% on the day.
- Safe havens trade down quite aggressively today - gold, usdjpy and TNX - about 1% down on average, thus this is the perfect day for an Apple breakout as there is excess liquidity to be allocated to risk assets.
Volume:
- Volume has traded below the quarterly average for the past 10 days, consistent with apples post-Brexit bull run. Low volume is a bullish signal as it indicates investors do not want to offer their apple risk at current prices and wish to hold for further upside before increasing their offering.
- In particular yesterday volume traded 40% lower than the quarterly average at 23m, this bodes well for a bull run/ $100 break-out today as if new buyers with to get on the apple curve they must bid the price higher (and through the $100 level).
Volatility:
Whilst volatility isn't at the 12m lows that we saw at the end of may, IV has certainly came off somewhat from the Brexit highs at 30%, to trade currently at 23.77. This too, along with the low volume has been consistent with apples post-brexit bull run and continues to provide investors the assurance they need to fund further liquidity and push apple higher/ through the $100-1 breakout level.
- Historical Vol trades close to implied at 20%, once again providing a close to ideal buying environment (ideally HV is higher than IV for buying conditions).
Option Demand:
- Apple end of week option demand looks healthy, with there being a huge skew for apple topside options e.g. the 25 delta calls (101) trade at 17,500 contracts, whilst the downside 25 delta puts (98.50) only trade at 9,000 contracts - almost half. Given this skew in upside demand, this could fuel a apple breakout at the 101 level. Even at 102 there are 20,000 demanded at 13 delta calls vs only 12,000 demanded for 13 delta downside puts - so all in all this excessive bullish option demand could have a magnet affect as these prices are reach in spot as they come in the money and are brought causing a cascade of fresh demand from the option space.
Technical
- Apple 2-days ago broke out its second key MA resistance, which was at 98.69 and the quarter MA, this too is a bullish sign and provides downside support if it be the case.
- Apple trades in the middle of its +/-2 standard deviation channels which means there is certainly room for a topside breakout without any probability prejudice that may occur if it was close to the +2 SD channel which provides strong resistance - the +2 12m SD channel trades at approx 107 - this is a clear target for the apple breakout if it materialises.
Market sentiment:
- As we know the past 2wks have been strong risk-on sentiment with SP and DJ setting new highs by 1-2+%, though Nasdaq has lagged new highs but nonetheless broke-out from the 4600 resistance and has given tech stocks a fresh lease of life.
- Also Microsoft outperformed earnings expectations which no doubt will help give investors confidence about adding more apple to their portfolios or adding fresh positions going into apple earnings next week, since the two have revenue streams closely linked - Microsoft traded up 4% in post market yesterday, and in pre-market trades up at new highs of 56 - 5.44% on the day.
- Safe havens trade down quite aggressively today - gold, usdjpy and TNX - about 1% down on average, thus this is the perfect day for an Apple breakout as there is excess liquidity to be allocated to risk assets.
Note
Apple expectations:- With low earnings expectations e.g. 42bn revenue (some 17% down) from last years posting, i believe the bar is set pretty low for apple and thus earnings topside positioning could help apple breakout to the mid 105's. Apple for the first time will include the sales of its SE model phones, so imo this will help revenue + could shock the market given the low revenue expectations. In which case i expect apple to trade to 107-110 which is Aprils resistance. We could move higher e.g. 120-125 if apple really outperformed the 42bn expectation e.g. 50bn revenue, beating 2015 Q2 - i think this is certainly a possibility on the curve rather than not given SE sales could surprise
- Apple trades up 0.26% in pre-market, at 100.13 - hopefully with a bull run to come today. A break and close above 101 would be significant today and i would then expect us to move to 103 tomorrow before finding a pre-earnings high of 105-7
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