Dow component Apple Inc. (AAPL) posted impressive numbers on Tuesday evening, beating fiscal third quarter profit and revenue expectations while raising fourth quarter revenue guidance. Market players forgave a slight miss in iPhone shipments, with average selling price (ASP) coming in much higher than expected. The metrics triggered an immediate buy-the-news reaction, lifting the Cupertino, California-based icon more than 4% to an all-time high just under $200.
However, the upside appeared limited for now, with the rally approaching resistance at a trendline of rising highs going back to May 2017. This barrier has also aligned with round number resistance, predicting that the stock will spend weeks or months testing the $200 level before a more powerful advance or a reversal that targets support near $170. Of course, that won't stop trend followers from jumping on board, hoping that the uptick escapes gravity. (See also: Apple's Biggest Challenge, Slowed Growth: Analyst.)
AAPL Long-Term Chart (1999 – 2018)
The stock broke out above 1991 resistance at a split-adjusted $2.62 in September 1999 at the height of the internet bubble and doubled in price into the March 2000 peak at $5.37. It completed a double top pattern six months later and broke down, failing the breakout and losing ground into the second quarter of 2003, when it bottomed out at a five-year low. The subsequent uptick completed a long-term basing pattern, setting the stage for a new uptrend.
The advance finally reached the prior high at the start of 2005, triggering an immediate breakout that posted impressive gains throughout the mid-decade bull market. The rally ended in December 2007 at $29, giving way to a topping pattern that broke support during the 2008 economic collapse. The stock held up relatively well during that troubling period, settling at a two-year low above $11.
It returned to the 2007 high in 2009 and broke out, entering a strong uptrend that stalled near $100 in 2012. A steep decline found support at the 50-month exponential moving average (EMA), carving the first leg in a massive rising channel (red lines) that yielded a 2017 breakout after eight months of testing. That price action established a second rising channel (black line) that is coming into play after this week's earnings report. New breakout support will align perfectly with smaller-scale channel support near $185 (yellow circle) in December 2018.
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AAPL Short-Term Chart (2017 – 2018)
On-balance volume (OBV) topped out in November 2017 after an 18-month accumulation wave and dropped into a jagged pattern that signals a standoff between bulls and bears. It's currently stuck in the lower half of the broad indicator range, set to flash a major bearish divergence when the stock posts an all-time high at the opening bell. This further lowers the odds that Apple stock will break resistance at $200 quickly and enter a more vertical trajectory.
Channel support extends back to May 2016, when a year-long downtrend came to an end. This trendline translates into current support near $170 but will rise about four points per month, limiting downside if bears prevail at resistance or the broad market turns lower. For now, the 50-day EMA at $188 represents a more important support level because it has been tested repeatedly since mid-June.
Traders should watch volume levels in the next few sessions to gauge the impact of the post-earnings rally on the slumping OBV indicator. Apple carved the weakest second quarter volume pattern in the notorious FAANG quintet, attracting the weakest buying interest in the group. Taken in context with channel and round number resistance, the smart money players are likely to sit on their hands, despite the strong quarter. (See also: Apple Pay to Have Most Customers: Juniper.)
The Bottom Line
Apple stock is set to open at an all-time high following strong third quarter results, but weak accumulation and stubborn resistance could limit gains. (For additional reading, check out: 4 Mutual Funds That Hold Apple Stock.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>