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All Eyes on Apple

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Iconic tech behemoth Apple, Inc. (AAPL) steps to the plate on Tuesday evening, issuing a quarterly report bulls believe will continue the resurgence generated by the introduction of the iPhone 7 in September 2016. The stock has risen more than 25% since that time, breaking out to a bull market and all-time high. However, it’s now priced for perfection, potentially increasing downside risk if the metrics fail to please Wall Street or the trading crowd.

Big tech has rocketed higher in recent weeks, attracting solid buying interest in reaction to bullish earnings and optimistic fiscal year guidance. The Nasdaq-100 has printed a series of new highs during this period, strongly outperforming other benchmarks, but now faces calendar risk because the tech sector is exiting positive seasonality. This tracks the market’s classic advice to sell in May and go away, with sector underperformance expected until the fourth quarter.

AAPL Long-Term Chart (1993-2017)

AAPL

The stock topped out at $2.13 (post three splits) just before the 1987 crash and dropped into a trading range that broke to the downside in 1996, dropping the stock to a 12-year low at 46-cents. It joined other tech stocks in the Dot.com bubble in 1998, stratifying to the March 2000 peak at $5.37. It lost ground at the same trajectory into the start of 2001, bottoming out near a buck and testing new support three times into the second quarter of 2003.

It then took off in powerful recovery that broke out above the 2000 high in 2004. The subsequent trend advance lifted the stock into a leadership role during the mid-decade bull market, finally topping out at $29 at the end of 2007. It plunged with world markets during the 2008 economic collapse, finding support in the low teens in the first quarter of 2009, ahead of a bounce that gained ground at a rapid pace.

A 2010 breakout eased into a rising channel that peaked near $100 in 2012, ahead of a two-year correction that built a solid base. It broke out once again in 2014, stair stepping into the April 2015 high at $134.52. That marked the top, ahead of a second corrective wave that found support in the upper-80s in the first-half of 2016. Buyers took control through the summer months, with momentum escalating into a first-quarter 2017 breakout that’s reached an all-time high near $150.

Six-year price action has drawn a rising channel (blue lines) that identifies hidden resistance above $160. Also, the monthly Stochastics oscillator has reached the most extreme overbought reading in the last two decades, raising odds for a bearish crossover later in 2017. Taken together, the uptrend can easily continue but reward potential is now limited, telling shareholders to tight stops, especially when the price reaches within a few points of the trendline.

AAPL Short-Term Chart (2015-2017)

AAPL

Three tests near $90 pounded out 2015 and 2016 support, giving way to a steady buying impulse that triggered a 7-point rally gap in February 2017. More importantly, the stock hasn’t carved a single pullback or basing pattern since it lifted off a three-month trading range with resistance at $118. This straight up action exposes the uptrend to a major pullback if bullish sentiment turns south, with a potential buying opportunity later in the year between $115 and $125.

On Balance Volume (OBV) has generated a bearish divergence that also tells shareholders to look out below if quarterly metrics fail to meet lofty expectations. It peaked in the first half of 2015 and fell in a major distribution wave into May 2016 while buying interest since that time has failed to make up the deficit. Also, the indicator hasn’t budged in two months, even though the stock has added 10-points. This suggests moderate profit taking under the surface.

The Bottom Line

Apple heads into first quarter earnings with highly bullish sentiment across the big tech sector offering a stiff tailwind. It could easily trade up to $160 following a strong report, but downside risk has now escalated, opening the door to $120 after a relatively minor shortfall or less than stellar guidance.

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>

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