Apple Inc. (AAPL) could pay a steep price for its carefully nurtured China connection if the Trump administration follows through on a laundry list of tariffs directed at the Asian giant. Retaliation may target iPhone components built in China as well as local sales, which comprised 24.3% of market share at the end of 2017. That move would also favor higher sales in locally built smartphones from competitors Huawei and Xiaomi.
The tariff scare has come at a bad time for the Cupertino, California-based icon, which is struggling to ramp up production and interest in the high-priced iPhone X. Disappointing fiscal first quarter sales contributed to a steep February decline that dropped the stock to a four-month low at $150. It has recovered since that time, but a recent breakout above the Jan. 18 high has now failed, possibly exposing another trip to the corrective low. (See also: iPhone 8 Rescues Apple From Sales Slump in China.)
AAPL Weekly Chart (2012 – 2018)
A powerful uptrend stalled just above $100 in September 2012, giving way to a steep correction that found support at the 200-week exponential moving average (EMA) in the mid-$50s in the middle of 2013. A small base at that level yielded a fresh uptrend that gathered strength through 2014, finally topping out near $130 in March 2015. Apple shares tested that level in July and turned sharply lower during the August mini flash crash, dumping to a 52-week low in the low $90s.
The stock bounced along that level for more than 10 months, finding support once again at the 200-week EMA. An upturn into the second half of 2016 stalled near $115, while a follow-through rally completed the round trip into the 2015 high in February 2017. It broke out immediately, entering a rising channel two months later. That pattern has held intact through the first quarter of 2018, despite a whipsaw through channel support during the February sell-off.
The weekly stochastics oscillator fell to the deepest oversold reading since 2016 in February and turned higher, reaching the overbought level last week. The monthly oscillator crossed into a sell cycle in June 2017 but has spent the past nine months grinding sideways just below the overbought line. These readings confirm that bulls maintain control, but only a little selling pressure is needed at this point to confirm long-term sell signals.
AAPL Daily Chart (2017 – 2018)
The uptrend has made little progress since a strong rally wave ran out of gas at $176.24 in November 2017. It dropped into a rectangle pattern after hitting that level and broke out on Jan. 16, but the impulse failed just two sessions latter, generating a failed breakout during the February swoon. The strong bounce off that low stalled at the January high on Feb. 27, ahead of a March 12 breakout that also failed to attract momentum buying pressure.
Multiple failures have drawn a shallow channel resistance line that has now reached $184. Bulls need to post a high-volume breakout above this level to improve the technical outlook, which now exposes a trip back to channel support, located a few points above the February high at $158. Conversely, bears need to break interim support at $172 and $167 to reach the corrective lows, while those levels could mark buying opportunities.
On-balance volume (OBV) warns buyers that bears are holding the strong suit in this developing conflict. It topped out in September 2017 at the time of the iPhone X announcement and tested that level in November, right after fiscal fourth quarter earnings. Sellers then took firm control, dropping the indicator to the lowest low since July 2017. More ominously, the recent rally to an all-time high at $183.50 has failed to move the needle, with the indicator now struggling near a six-week low. (For more, see: Why Apple Will Not Buy Netflix or Disney.)
The Bottom Line
Apple has failed a breakout to new highs for the second time in two months, while weak buying interest has set off bearish divergences. Intermediate and long-term relative strength indicators are now primed to confirm major sell signals with a relatively small downturn, warning bulls to take defensive measures. (For additional reading, check out: Apple Making Its Own Screens: Report.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>