Dow component Apple Inc. (AAPL) is trading at an all-time high above $400 in Friday's pre-market after beating top- and bottom-line fiscal third quarter 2020 estimates and declaring a four-for-one stock split that goes into effect at the close on Aug. 24. The tech icon reported double-digit growth in iPads, Mac, and wearables, while iPhone revenues rose 1.5% year over year to $26.4 billion, better than the $22.0 billion consensus. The company chose not to provide fourth quarter guidance due to uncertainty as a result of the COVID-19 pandemic.
- Apple posted strong results across all divisions and geographical locations.
- The tech icon will open Friday's session at an all-time high above $400.
- A bearish volume divergence could undermine the upside in coming weeks.
- The stock will split four-for-one at the close on Aug. 24.
Exceptionally strong results in all divisions and geographic locations drove the blowout quarter, with $59.69 billion in revenue marking a 10.9% year-over-year increase that beat estimates by more than $5.0 billion. It's clear that the pandemic has been extremely beneficial to Apple's bottom line, with millions around the world forced to work at home and access digital devices, whether for business or leisure activities.
The four-for-one split caught market watchers by surprise because the practice had been shunned by major corporations in the past two decades, with the assumption that higher prices would attract more desirable institutional ownership. The Robinhood phenomenon, in which thousands of new traders have used stimulus funds to open commission-free trading accounts, has tossed that theory on the trash heap, making it likely that other big tech companies will follow.
A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts because the split does not add any real value.
Apple Long-Term Chart (2007 – 2020)
The stock rallied above the December 2007 high in the upper $20s in the second quarter of 2010, grinding out a powerful trend advance that stalled at $100.75 in September 2012. It sold off into 2013, finding support at the 50-month exponential moving average (EMA) in July, and bounced back to the prior high in 2014. An October breakout made rapid progress into $135, ahead of another pullback that found support at the moving average in 2016.
Apple broke out once again in the first quarter of 2017, topping out at $233 in October 2018, yielding a third bounce at the moving average in December. The subsequent uptick stalled at $328 in January 2020 and rolled over in a vertical 116-point decline that ended at a six-month low in March. Aggressive buyers then stepped in, returning the stock to the first quarter peak in June, ahead of a breakout that is trading at an all-time high above $413 ahead of Friday's opening bell.
Apple Short-Term Chart (2018 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator mars an otherwise pristine technical outlook, posting an all-time high in January and dropping to a 14-month low in March. Buying pressure into July recouped just two-thirds of the accumulation lost in the first quarter, setting off a bearish divergence when price lifted to a new high in June. This conflict will grow until OBV plays catch-up and hits a new high or the stock reverses and fails the breakout. Right now, the smart money is looking for healthy buying interest to end the conflict.
The June breakout reversed at the 1.618 Fibonacci extension earlier this month, a common turning point, while this morning's opening print should mount that barrier. Even so, this is a magnetic zone that could attract price action from above and below for several weeks before yielding a sustained trend move, higher or lower. Watch OBV if those whipsaws take hold because volatile sideways action could finally correct the volume deficit.
Fibonacci extensions are a tool that traders can use to establish profit targets or estimate how far a price may travel after a retracement/pullback is finished. Extension levels are also possible areas where the price may reverse.
The Bottom Line
Apple stock is trading at an all-time high on Friday morning after a blowout quarterly earnings report.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.