Dow component Apple Inc. (AAPL) is trading at a two-month high above $200 in Monday's pre-market session after the United States and China agreed to resume trade talks. The truce takes political pressure off the Cupertino, California-based icon, which could be targeted for retaliation if President Trump fails to lift the Huawei ban or tariffs expand into other Chinese imports. The cease-fire may also delay initial planning to shift 15% to 30% of manufacturing capacity into safer nations.
Even so, patriotic Chinese customers have been avoiding American-made products so far in 2019, and that's unlikely to change, given hard-nosed rhetoric from the communist-controlled press following the G-20 meeting. iPhone sales have taken a dive in the Asian nation, and only a full agreement that lowers tensions and eliminates trade barriers is likely to improve that bearish trajectory.
Up Next: July Earnings
The market is trading sharply higher into the opening bell, despite nearly 18 months of fruitless trade negotiations. However, the relief rally could be short lived because it's also the first day of the third quarter, which Stock Trader's Almanac notes is the "most bullish first trading day of all 12 months," advancing 85.7% of the time. Market players will shift their attention to second quarter earnings and the third quarter outlook at the closing bell, raising the odds for a reversal that puts renewed pressure on Apple stock.
Given the cross-currents, can Apple shares trade at new highs in the coming months? Early action this week has triggered the first phase of a test at June resistance above $215, which lies about 18 points below 2018's all-time high. Accumulation has taken a major hit in the past two months, and Apple will need to find new buyers to replace these departing shareholders. That may not happen without a long-term trade deal, warning bulls that range-bound action might continue into 2020.
Apple Weekly Chart (2015 – 2019)
The stock broke out above 2015 resistance at $133 in February 2017 and entered a powerful trend advance that accelerated in July 2018. It posted an all-time high at $233.47 three months later and broke down from a small topping pattern in November, entering a steep decline that found support at an 18-month low in December. That level also marked the .618 Fibonacci retracement level of the 2016 into 2018 uptrend as well as the 50-month exponential moving average (EMA), which has generated four major buying opportunities in the past decade.
The bounce into 2019 reversed in early May at the .786 Fibonacci sell-off retracement level and resistance from the November breakdown at $215. It cut through the 50-week EMA a few weeks later and bounced in June, remounting that important support level. Monday's early uptick is testing the .786 retracement of the decline into June, yielding a harmonic balance that could be meaningful in coming sessions.
Watch the Fibonacci Ratios
Specifically, this Fibonacci ratio appears frequently when financial instruments are grinding through topping patterns, warning market players that a reversal at or below $205 will add to the bearish price structure in place since October 2018. In addition, technicians will be looking closely at buying volume in the coming sessions, seeking to determine if it's sufficient to break that resistance level and generate a more important test at the May high.
Bulls and bears should watch these harmonic levels closely because they could generate early but potent signals in either direction. Keep in mind that the technical landscape will improve greatly after a breakout above $215 because that would set the stage for a test at the 2018 high. Even so, it's better for bulls if the test is delayed into the fourth quarter to let weak accumulation readings play catch-up because a breakout without adequate volume support could trap over-eager buyers.
The Bottom Line
Apple stock is testing short-term resistance at $205 after the G-20 meeting and needs to clear this level to challenge stronger resistance at $215 and $233.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.