Technical Analysis and Market Entry: Apple (AAPL)

  • Apple (AAPL) shares have been rallying for the past three consecutive weeks and have gained over 40% so far in 2019.
  • The iPhone maker is due to report its quarterly earnings on April 30, where Chinese sales will be heavily scrutinized.
  • A long trade for Apple in the very near-term is attractive given the current upside momentum.

AAPL Recent Price Behavior

Apple shares are enjoying a strong bull run for 2019 so far, proving to be very much consistent. The price has gained over 40% from the start of the year, after being dealt a blow at the back end of 2018. Shares in Apple fell victim to profit-taking following such as strong bull, which was particularly seen from May 2016, right up until October 2018, gaining over 150% during this period. The stock hit an all-time-high up at $233, which not long after saw the bears piling into the stock.

Apple Pullback

Apple shares – weekly chart.

It isn’t too much of a surprise to have seen a sizeable correction, given the lengthy bull run. Naturally, investors are going to want to cash-out, and this likely sparked a chain reaction of sellers. It is adding fuel to the fire, producing some panic-selling and the most significant pullback since 2012. The price fell to a low of $145 on the week of 31st December, before managing to stage a rebound. It was the lowest Apple had been since July 2017. Strong support was found at the 61.8% Fibonacci of the bull run commencing in May 2017.

Historically, going by the most recent sizeable Apple pullbacks (June 2015, September 2012 and May 2008), it has taken the stock an average of around two years to produce new all-time-highs. However, Apple shares are making substantial progress back towards the October 2018 high. The price is just some 13% away from retesting and potentially printing new heights. There is a considerable risk of a potential double top formation, as detailed in a similar case with Amazon.

Earnings Report – 30 April

On Tuesday 30th April, after the closing bell, the iPhone maker is due to report its quarterly earnings. Analysts are anticipating Apple to report revenues of $57.4 billion for an expected contraction in sales of 6% year-over-year. Meanwhile, the current EPS expectation of $2.36 would represent a sizable 14% drop versus year-ago levels. The company themselves are forecasting revenues of $57.0 billion, which would equate to around $2.33 in EPS.

Outside of the headline numbers, the focus will also be switched to China, which has been somewhat of a concern for a prolonged period. At the start of the year, Apple slashed its Q1 guidance, citing fewer iPhone upgrades and weak sales in China. After the U.S. and Europe, China is Apple’s third largest market. The announcement from the company at the time sparked much panic across the financial markets amid growing concerns of a Chinese slowdown.

Trade Recommendation

Apple shares – daily chart.

Given the strong momentum to the upside, eyes are on a continued move north. Price action as seen via the daily chart view is moving within an ascending channel formation. Look at longs upon a retest near the lower supporting trend line of the channel, $195.

The upside target would then be the all-time-high printed in October 2018, $233. Profits would be taken in proximity, given the dangers of a potential double top formation, clearly seen via the weekly chart above. Stops should be placed just below the support at $185, leaving enough breathing room.

Featured image courtesy of Shutterstock.

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.