Apple Inc. (AAPL) enthusiasts lifted the Cupertino, California-based icon within 98 cents of the bull market and all-time high during CEO Tim Cook's Tuesday unveiling of the new iPhone 8, iWatch and highly anticipated iPhone X. Sellers took control as soon as the presentation ended, dumping the stock more than five points in a classic bull trap that targeted weak-handed buyers. The turnaround has extended into Wednesday's pre-market session, with the stock struggling to hold the $160 level.

This bearish price action makes perfect sense within the market's altered reality, with the least informed players jumping onboard during a self-congratulatory marketing event rather than acting on technical or fundamental catalysts that support higher prices. Reversal mechanics also matched the current trade setup, with the stock grinding through the sixth week of a test at five-year channel resistance above $160. (See also: Apple Unveils iPhone X, 8, New Watch, Apple TV 4K.)

Apple suppliers including Cirrus Logic, Inc. (CRUS), Skyworks Solutions, Inc. (SWKS) and Analog Devices, Inc. (ADI) also reversed, but those issues face greater headwinds than their benefactor, failing to post new highs since June despite a high-tech bull market that has lifted the Nasdaq-100​ to an all-time high above 6,000. This group could attract aggressive short sellers in the fourth quarter if quarterly results in Apple's Oct. 24 earnings report fail to match iPhone hype. (For more, see: Apple's iPhone 8 Glitz May Not Lift Its Suppliers.)

AAPL Weekly Chart (2012 – 2017)

 

For Apple shares, an uptrend that started at the end of last decade's bear market stalled at $100.75 in the fourth quarter of 2012, giving way to a decline that found support at $55.03 in April 2013. That price swing carved the boundaries of a rising channel pattern that has limited gains and losses in the past five years. Channel support has roughly tracked the 200-week exponential moving average (EMA), while rallies have added between 70 and 80 points.

The stock bounced at channel support in May 2016, while the subsequent trend advance reached channel resistance in August 2017. The stock has been riding the channel to higher ground for the past six weeks but still has not broken out, raising the odds for a downturn that could last well into 2018 while dropping the stock toward the $110 level. That bearish prognosis would change with a buying spike or gap above $165, setting the stage for a more vertical uptrend. (See also: Where Will the Nasdaq Go Next? It Depends on Apple.)

The monthly stochastics oscillator dropped into a sell cycle in June 2017, predicting six to nine months of relative weakness, but the stock has added points since that time, raising doubts about the reliability of the sell signal. Meanwhile, narrow price action has established short-term support near $155, marking a line in the sand that bulls need to defend if selling pressure picks up, because a breakdown would confirm the reversal at channel resistance.

CRUS Weekly Chart (2012 – 2017)

 

Cirrus Logic stock has carved the most bearish chart in the blue-chip supplier universe, rallying within 15 points of the 1996 high at $61 in 2012 and turning sharply lower in a complex correction that spent 18 months testing support in the mid-teens. The stock finally turned higher in 2015, reaching 2012 resistance in July 2016 and breaking out in a strong rally that posted an all-time high at $71.97 in June 2017.

It has been all downhill since that time, with a key reversal turning into a full-scale rout that failed the 2016 breakout in August 2017. The stock found support in the low $50s a few weeks ago and has bounced into a test of new resistance that could last into the fourth quarter. A quick buying spike above $60 should set off bearish signals that favor aggressive short sale entries ahead of continued downside into deeper support in the upper $30s. (For more, see: 2 Suppliers Dependent on Apple for Majority of Revenue.)

The Bottom Line

Apple attracted weak-handed buying interest during its Sept. 12 product presentation and then sold off, with algorithms targeting late-to-the-party bulls. This reversal triggered little short-term technical damage while raising the odds that resistance at the top of a five-year channel will trigger a long-term correction. (For additional reading, check out: Stock Market's Future Hinges on No. 1 Apple.)

<Disclosure: The author held no positions in the aforementioned stocks at the time of publication.>

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