Dow component Apple Inc. (AAPL) defied expectations in the first quarter, beating fiscal second quarter 2020 profit and revenue estimates despite massive worldwide headwinds. The company posted earnings per share (EPS) of $2.55 on revenue of $58.31 billion, alleviating anxiety about the pandemic sales impact, but the tech giant offered no third quarter guidance due to a "lack of visibility." Shareholders initially hit the exits, ignoring hikes in dividend and buyback programs, but the stock is trading higher after Friday's opening bell.

Second quarter iPhone and iPad revenues exceeded expectations, while wearables came up short. Gross margins missed estimates by one-tenth of a percent, underpinned by an 8% year-over-year decline in China revenue. The company noted that Chinese production has now resumed and that demand has improved substantially in the past four to six weeks. Curiously, little subscriber data on Apple+ was provided, with that information embedded within the broader services revenue.

The stock just posted an "inside month," with April's range sandwiched between larger March extremes. This constrictive action is likely to continue in the coming quarters, forestalling a breakout to new highs or a breakdown through the March low. As a result, sidelined investors may wish to keep their powder dry because lower-risk entries may come at a later date. It's also possible that Apple stock is topping out after a multi-decade uptrend and will trade at lower levels in the coming years.

AAPL Long-Term Chart (1992 – 2020)

Long-term chart showing the share price performance of Apple Inc. (AAPL)
TradingView.com 

A long-term downtrend ended at a 12-year low in 1998, giving way to an uptick that broke out to a new high in the fourth quarter of 1999. The rally ended at a split-adjusted $5.37 a few months later, yielding a vertical decline to 97 cents at the start of 2001. The stock tested that support level successfully in 2003 and completed a double bottom reversal, ahead of a major uptrend that posted new highs in 2005.

The rally topped out at $29 in 2007 and eased into a double top that broke to the downside during the 2008 economic collapse. The sell-off found support at a two-year low in the lower teens, setting the stage for a recovery that completed a 100% retracement into the prior high at the end of 2009. A 2010 breakout attracted widespread buying interest, stalling at $101 in September 2012. The stock has posted a long series of higher highs and higher low since that time, lifting into market leadership.

The monthly stochastic oscillator crossed into a sell cycle from an extremely overbought technical reading in February 2020, predicting at least six to nine months of relative weakness. The indicator is now attempting to cross higher at the panel's midpoint, which has a bad reputation for issuing false buying signals. As a result, Friday's market should offer an informative test of bull vs. bear strength, especially after a straight-up recovery off the deep March low.

AAPL Short-Term Chart (2018 – 2020)

Short-term chart showing the share price performance of Apple Inc. (AAPL)
TradingView.com

There are other reasons to believe that Apple buyers will have a tough time right here. For starters, the six-week bounce has just cleared the .618 Fibonacci sell-off retracement level after a two-week consolidation and is now headed into formidable resistance at the narrowly aligned .786 Fibonacci sell-off retracement and unfilled Feb. 24 breakaway gap near the psychological $300 level.

In addition, the on-balance volume (OBV) accumulation-distribution indicator has barely budged off the 14-month low posted on April 7, indicating that covering short sellers have provided most of the firepower for the recovery wave. This also tells us that committed buyers remain on the sidelines, choosing not to "buy the dip" even though the March decline dumped the stock to the lowest low since September. This lost sponsorship can be replaced, but it will take time, raising the odds that price action will roll over and ease into a long-term trading range.

The Bottom Line

Apple stock is trading higher on Friday after the tech giant beat first quarter metrics but chose not to provide guidance for the current quarter.  

Disclosure: The author held no positions in the aforementioned securities at the time of publication.