AppleInc(AAPL) .’s fiscal second quarter results announcement on May 1 soothed worried shareholders who had been inundated with pessimistic news of decreasing sales over the previous two months. The real findings sparked a buying frenzy and short squeeze, propelling shares of the Cupertino, California-based giant more than 20 points higher to an all-time high over $190. It has been dormant since May 10, meandering sideways in a tight range pattern that has failed to entice follow-through purchasing activity.
A three-week symmetrical triangle after a vertical trend impulse is totally natural, and it increases the likelihood of higher prices in the coming weeks. This is particularly true given the pattern’s bullish reputation, which is frequently referred to as the pennant at the top of the flagpole. However, there are technical grounds to assume that Applestock will continue to fall and close the gap created by the announcement, with the $169 to $174 price range giving a lower-risk purchasing opportunity.
For instance, since February 2017, when it broke out above 2015 resistance at $135, it has filled every gap. Breakaway gaps are more difficult to close than ordinary gaps deep inside congestion patterns, and the May variant printed towards the middle of a seven-month trading range. The May rally also came to a halt at the top of a five-year rising high trendline and an 11-month rising channel, while accumulation-distribution readings failed to reach new highs, resulting in a bearish divergence that is still present. (See: Apple Poised for Another Bullish Breakout for another recent view on the stock.)
AAPL Weekly Chart (2012 – 2018)
In 2012, the stock finished a multi-year uptrend and began a strong decline that found support in the second quarter of 2013 near the 200-week exponential moving average (EMA). The next rebound wave broke out above the earlier high in October 2014, resulting in a robust gain that peaked above $135 in February 2015. A sustained decrease through 2016 terminated at the 200-week EMA once again, emphasizing the significance of that price level, while a February 2017 breakout gap heralded a new trend impetus that persisted into 2018.
This arithmetic scale chart links the highs of 2012 and 2015 while cutting across a rising channel during the 2018 highs series. Switching to logarithmic scale, however, concentrates the 2017 and early 2018 highs directly on the ascending trendline, indicating latent long-term resistance. Meanwhile, the May rally wave climbed a few points over the trendline, but the consolidation pattern into June is locked right there. (See also: Morgan Stanley: Apple will Hit $214 on Services.)
AAPL Daily Chart (2017 –2018)
In November, the 2017 upswing slowed to a halt, but price activity until March 2018 produced four marginally higher highs. A parallel line drawn across swing lows dating back to July 2017 completes a rising channel pattern, with support now aligned at the 50-day exponential moving average. Escape gravity from this price structure will need significant purchasing strength, particularly with the multi-year trendline obstructing the road to $200, which also signals a big resistance level.
After reaching an all-time high in August, on-balance volume (OBV) peaked in November 2017 and started a distribution phase that lasted until late April, when speculators purchased the stock ahead of the results announcement. Buying pressure after the news failed to push the indicator above the preceding high, triggering a bearish divergence that increases the likelihood of a retreat or prolonged trading range.
A drop below $185 would convert the symmetrical triangle into a more bearish descending triangle, allowing for a retreat to close the May gap. The 200-day EMA is now crossing that price zone, which also correlates to the.618 Fibonacci rally retracement level. As a consequence, patient investors and traders eager to get on the Apple bandwagon may find a low-risk opportunity in the coming weeks.
The Bottom Line
After a better-than-expected second-quarter earnings announcement, Apple shares surged to a new high before settling into a sideways pattern that will shortly reach its fourth week. Several layers of hidden resistance increase the likelihood of a downturn offering a buying opportunity around $170. (For more information, see: Apple Reportedly Shifting to OLED, Suppliers Hurt.)
Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.>
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