Dow component Apple Inc. (AAPL) has dropped more than 35 points since posting a six-month high at $215.31 on May 1. Many sidelined investors are chomping at the bit, wanting to jump back in, but the decline could carry another 20 points and undercut $160 before a strong bounce sets into motion. As a result, it makes sense to keep your powder dry for now, waiting for selling pressure to wash out or for the United States and China to cut a trade deal.
Apple stock faces three major headwinds without a deal. First, tariffs will trigger supply chain disruptions, lowering domestic sales and margins. Second, bad blood will encourage Chinese citizens to look for alternatives, despite their love affair with the iPhone. Last but not least, the prosecution of Huawei's CFO invites retaliation by the Chinese government, with Apple the most vulnerable target in a tit-for-tat exchange.
AAPL Long-Term Chart (2005 – 2019)
The stock broke out above the 2000 high at a split-adjusted $5.37 in 2005, entering a strong trend advance that topped out at $29.00 in the fourth quarter of 2007. It carved a double top at that level and broke support at $16.50 in September 2008, entering a decline that ended at a two-year low in the low teens a few months later. This resilient performance compared to broad benchmarks supported a strong bounce off the low, completing a round trip into the 2007 high in October 2009.
Healthy gains continued into the second half of 2012, when the stock reversed at $100, entering an intermediate correction that found support at the 50-month exponential moving average (EMA) in 2013. It returned to the 2012 high 14 months later and broke out, adding more than 30% into March 2015, when the rally stalled above $133. A choppy downtick then took control, eventually finding support at the 50-month EMA for the second time in three years.
A 2017 breakout gathered steam, lifting Apple stock into October 2018's all-time high at $233.47, ahead of a steep downturn driven by trade war fears and weak iPhone X sales. It descended in a straight line into January 2019, coming to rest at the 50-month EMA for the third time in six years, while the subsequent recovery wave stalled at the .786 Fibonacci sell-off retracement level earlier this month.
AAPL Short-Term Chart (2018 – 2019)
The May decline dropped the stock through the 50- and 200-day EMAs, indicating aggressive selling pressure that could signal a long-term top. However, tops take time to form, and the next uptick could generate high-percentage returns for well-timed long positions. Fibonacci and price structure offer guidance in this regard, with the .786 retracement of the three-month bounce situated near $160, which is perfectly aligned with the unfilled January gap between $155 and $163.
The on-balance volume (OBV) accumulation-distribution indicator posted a new high in August 2018, a few weeks ahead of price, and fell to mid-panel in early 2019. Buying power into May looks impressive, lifting the indicator into the prior peak even though the rally ended nearly 20 points under the October high. This bullish positioning indicates that Apple could hit new highs quickly if the United States and China work out their differences.
The stock is trading less than 20 points above the downside target at $160 on Monday, and it won't take many sellers at this point to bring that price into view. Buying pressure has been non-existent since the start of May, telling informed market players that there's no reason to buy a falling knife in reaction to the next trade deal rumor. However, an actual agreement will improve the long-term outlook instantly, at whatever price that Apple is trading at the time.
The Bottom Line
Apple stock has entered the next leg of a broad trading range that could persist into the next decade. Barring a trade deal, this downdraft could reach strong support near $160, setting up a low-risk buying opportunity.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.