Apple, Inc. (AAPL) shares are trading higher in Monday's pre-market despite Friday's warning that the next round of China tariffs, expected to go into effect as early as this week, would add costs to a "wide range" of company products. Shareholders apparently took comfort in the Dow component's omission of the iPhone in Apple's bearish commentary, hoping that trade wars don't affect sales or margins of the tech giant's mobile lifeblood.
However, profits and revenues at a broad swath of U.S. big tech multinationals are likely to contract in the coming months as the unintended consequences of trade wars hit home. The tech heavy Nasdaq-100 index has begun the complicated process of discounting those headwinds, losing ground for four sessions in a row last week while dropping more than 3% and failing the July breakout. None of this bodes well for Apple stock in the coming weeks, suggesting that bulls place tight stops or take partial profits to lock in impressive third quarter gains. (See also: Apple Stock Begins September in Inflating Parabolic Bubble.)
AAPL Weekly Chart (2012 – 2018)
The stock ended a multi-year bull run at $101 in 2012 and reversed in a steep pullback that relinquished more than 40% of the prior upside. It found support at the 200-week exponential moving average (EMA) in April 2013 and tested that level successfully two months later, posting a double bottom reversal. The subsequent uptick completed a round trip into the prior high in August 2014, yielding a sideways pattern, followed by an October breakout that lost momentum in the $130s in the second quarter of 2015.
A decline into May 2016 ended at the 200-week EMA, mimicking the 2013 reversal while marking a historic buying opportunity, ahead of a powerful uptrend that broke out above 2015 resistance in January 2017. The rally posted superior gains into 2018, stuck like glue to the top of a short-term rising trendline (blue line) that broke to the upside in August. The rally went vertical after the breakout, adding 30 points in five weeks before hitting an all-time high at $229.67 on Sept. 5.
The buying impulse also mounted a multi-year rising trendline (red line), exhibiting impressive relative strength while transforming the $200 level from resistance into support that should offer a low-risk buying opportunity during a pullback. The 50-week EMA is lifting slowly into that level and should fortify support that will be tough for bears to break unless trade tensions spiral out of control in the coming months. (For more, see: What Makes Apple So Valuable?)
AAPL Daily Chart (2017 – 2018)
The weekly and daily stochastics oscillators turned lower into Friday's closing bell, predicting a period of relative weakness that could last into mid-October. In turn, this might signal a perfect time for the stock to enter profit-taking mode, shaking out weak hands while awaiting further guidance and potential warnings during the third quarter earnings report, scheduled for Oct. 30.
A Fibonacci grid stretched from the February low to the September high offers clues about upcoming price action, but the top anchor is tentative because the stock still hasn't confirmed a reversal off $230. Even so, it's noteworthy that the vertical impulse that started in August began at the 50% level, printing a continuation gap that often marks the midpoint of a strong rally or decline. Price action during the period has also carved an Elliott five-wave advance, although the pattern breaks an Elliot rule because the bottom of the fourth wave briefly violated the top of the first wave (black line). (See also: Apple Stock Could Spend Months Testing the $200 Level.)
The Bottom Line
Growing technical evidence suggests that Apple stock has completed the rally wave that started in February 2018 and will now pull back, testing breakout support at $200. (For additional reading, check out: 'Apple Most Worrisome Among FAANGs': Paul Meeks.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>