We all know that tech giant Apple Inc. (NASDAQ:AAPL) did a seven for one (7:1) stock split on June 9, 2014, that took the price from about $645/share down to $94/share.
But what you may not know is that this move set up AAPL for something really incredible. And I’m going to show you how to trade it, the Power Profit way.
It has to do with the stock split.
Pundits will tell you over and over again a stock split does nothing to the valuation of the amount of equity of AAPL stock in your portfolio. If you had $2,000 worth of stock before the split, you have $2,000 worth of stock after it splits (just more shares). Why all the hoopla?
The hoopla comes from past case studies of many a stock that has split, only to regain its pre-split price within one to three years.
There is where the excitement lies. The very real possibility of doubling your money within 12-36 months.
Or in this case, the possibility of increasing it by 7x…
Stock Splits Can Create Opportunity
Just to illustrate, if you bought 500 shares of a stock at $50, your total amount of stock is worth $25,000. After a two for one (2:1) split, you now have 1,000 shares priced at $25, or the same $25,000 worth of stock.
For people who did not previously own the stock at $50, they may now see it at $25 as affordable and start acquiring a position in the stock. At least, that is what the company hopes. As they see it, more buyers of their stock is more demand, and that should create a higher share price.
In any case, if that stock goes back to $50, you now have 1,000 shares times $50, or $50,000 worth of stock. In essence the investment in that stock has doubled!
And that brings me back to AAPL.
It did a 7:1 split, meaning those who owned it prior to the split now have 7x more shares of stock. Should it go back to its pre-split price, this means the opportunity is there to multiply their money by seven times!
That all sounds good, but I know many of you will now point to the current price of the stock (around $115/share). While it is up about 22% (before dividends) since the split 14 months ago, it is still trading well below its pre-split price.
This is true, and the question now becomes where will it go from here?
Technical Analysis Shows Us How Far AAPL Could Fall
As I write this, AAPL has fallen ~13% from the closing high ($132/share) set in July. It is possible that AAPL goes lower.
Look at the chart below and you see a boxed-in range for the stock that shows a breakdown of the support line of that range. Technical analysis tells us a move equal to the range (the difference between support/low and resistance/high of the range) may be expected in either direction of the break.
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The range appears to be $14 points. With the breakdown of support, an expectation of $14 points lower could occur, taking AAPL to $106. No one wants to hear that. No one owning this wants to believe that could happen. But it could.
But even though it could, I still believe AAPL is still a $200 stock in 12 months.
So what to do?
For investors, you likely wait out this potential drop in price. AAPL is still the largest market cap stock in the world at $660 billion (with a “B!”).
What to do for traders? I look to Money Calendar.
The Calendar Turns Bright Green Tomorrow…
I start by looking at the month and try to assess whether we are in a bullish phase or bearish phase of market action based on the heat map or color coding of the days. A darker shade of green means a higher level of bullishness where a higher shade of red speaks to a higher level of bearishness.
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When it comes to looking at the candidates on Money Calendar, I have said in the past these price patterns have happened and proven out at a high success rate over the last 10 years, of which I tend to favor those at 90% success rate or better.
I have also said it gives you an average price/profit move over specific date ranges that can be used to anticipate the upcoming price move on the stock. This is great because it doesn’t even need additional technical analysis, per se, even though I used it above to illustrate what is happening with AAPL.
One thing I will give you as an added way to assess when to go with a bullish or bearish trade is to look for more bullish opportunities when the calendar shows a higher amount of bullish candidates (a darker green color on the map), or bearish opportunities (with more red) on the calendar.
As you can see here, starting tomorrow – Friday, August 7 – we’re hitting a long, green expanse.
That being said, I will wait to pull the trigger on an AAPL trade.
I’m waiting until we actually get into a more bullish period shown by Money Calendar and then I will go from the month view shown to the list for the specific day view of my choosing.
What day will that be? What profit run will be expected on AAPL at that time? What strategy will be utilized to try and maximize the ROI or at least get us a double?
Keep an eye open to upcoming articles, and you’ll find out!