Dow component Apple Inc. (AAPL) broke out above the February high of $328 on Wednesday, posting all the time in the $340s is less than 12 weeks after a bad first quarter, the decline found support just above $200. However, the buying pressure failed to follow remarkable price action, grinding, low accumulation of readings that are warning traders and investors to act with caution in the coming weeks, despite the vertical climb.
Upgrades Deutsche Bank, HSBC Securities, JPMorgan, and BoA/Merrill are in the base of this impressive advance, but Apple stock still faces major challenges in coming quarters in the reconstruction of the iPhone and sales of equipment that have been seriously injured by the outbreak of coronavirus and retail store shutdowns across the world. While many American shops have reopened, continued worries about a “second wave” and the potential impact of political instability, which could undermine floor traffic and sales quarterly.
We are approaching a period of calm between the end of the quarter and in July, earnings season, with Apple during the third quarter of 2020 results on July 28. Company disclosures and news feeds tend to dry up at this stage of the cycle, with the rumor mills to kick at the speed during the race in the profit, often through Asia technology sites. The lack of catalysts that could induce a gravity-driven recovery in July, with shareholders taking profits in the short term technique, getting raped.
AAPL Long Term Chart (2005 – 2020)
The stock broke out above the 2000 high at a split-adjusted $5.37 in 2005, the seizure of a powerful uptrend that topped out at $29.00 at the end of 2007. It has carved a double top pattern at this level until September 2008 and crashed, falling to a two-year low in January 2009. That the relative strength relative to broad benchmarks promoted a strong recovery of the wave-making Apple, one of the first blue chips to publish new heights after the collapse of the economy.
The upward trend stalled in 2012 and 2015, with corrections find support at the 50-month exponential moving average (EMA) in 2013 and 2016, respectively. This symmetry came into play once more during the fourth quarter of decline at the horizon 2018, the generation of the third successful test of this level in six years. Upwards subsequent has completed a round of travel in the 2018 high in October 2019, which gives an immediate escape and rally, which ended at $328 in February 2020.
The monthly stochastic oscillator through a cycle to sell the overbought zone in February 2020, provide at least six to nine months of relative weakness, but the indicator crossed on top of the middle panel in May and has prepared a draft report of the purchase signal. It has now lifted back into the overbought zone, highlighting the upside of power that underlies the three months of rally and break. However, the 20-month Bollinger Band® has now lifted to the outside of the upper strip, warning that the rally has become overheated and is in need of a pullback.
AAPL Short-Term Chart (2018 – 2020)
The 2020 chart has carved characteristics at the time of the inverse head and shoulders ” and “cup with handle”, but the second quarter of price action that does not meet the requirements of classical training. More specifically, the stock has not taken the time to resistance to work off short-term overbought readings and the volume of divergences through a considerable number of the handle or to the right shoulder. As a result, the session may be difficult to maintain, increasing the potential for trapped trend followers.
The balance volume (OBV), the accumulation-distribution indicator complete this less-than-bullish analysis, failing to cross the 50% retracement level at the time of the breakthrough. In turn, this signals a major bearish divergence, warning that the stock does not receive institutional sponsorship and the purchasing power necessary to keep prices high. It also indicates that short-covering rather than committed buyers has led to the recent advance.
The Bottom Line
Apple stock broke out to a all-time high, but bearish divergence increase the chances that the rally will fail and the enhancement of the resistance just above$300.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.