AAPL Stock: Targeting Resistance
Apple Inc. (NASDAQ:AAPL) stock is quite an investment. This company contains such inherent strength that not even bad news surrounding a lackluster earnings quarter could stifle the buying pressure that continues to flow into Apple stock.
On May 2, 2017, Apple reported earnings and, at first glance, the market took this news in a negative light. AAPL stock responded by dropping a little over two percent in after-hours trading. This negativity that drove the share price lower stemmed from lower-than-expected “iPhone 7” sales, and this seemed to overshadow quarter-over-quarter revenue growth.
Apple did trade lower the next day, but the bulls put up a valiant effort to stem much of the losses that were incurred. On May 3, AAPL shares closed down a paltry 0.03% at $147.06, compared to the low of $144.27 that it hit intra-day. This inherent strength, mind you, was not a fluke, and there were indications in the preceding earnings which suggested that Apple shares were already geared toward higher prices.
I went out on limb prior to the earnings release and wrote a report titled “Apple Stock Is Geared Towards Higher Prices,” outlining key developments which suggested that higher stock prices were likely. I even mentioned that, even though earnings were due out that same day and volatility was expected, my view on Apple remained bullish, regardless of the outcome.
The following chart illustrates the price action that followed the earnings announcement, as well as the indications that continue to support an advance.
Chart courtesy of StockCharts.com
The price chart above illustrates that, following the earnings report, Apple shares opened lower and, while they did manage to trade lower early in the day, by the end of the day, the stock closed higher that it opened. This is illustrated by the red empty candle on the price chart above.
This is clear indication of bullish momentum overwhelming any bearish momentum on the day, as buyers quickly used the weakness in the price to snap up shares. The inherent strength contained in this investment was on display once again as AAPL shares closed at a new record high to end the week, completely dismissing any bearish implications that may have been implied by the earnings report.
This bullish strength was not a surprise, because it was already being suggested by two metrics, The constructive price action and the moving average convergence/divergence (MACD) indicator located in the lower panel of the above chart.
Constructive price action consists of an alternating two-wave structure. The impulse wave identifies a sharp progression in the price, and the consolidation wave alleviates any extreme conditions that were created in the sharp progression of the price. Once the consolidation wave is complete, a new impulse wave can develop.
A few days prior to the earnings announcement, AAPL stock completed the consolidation wave by exiting it in an upward direction. This event served to suggest that a new advancing impulse wave was set to develop.
This bullish view was reinforced by the moving average convergence/divergence indicator. This indicator is used to distinguish whether bullish or bearish momentum is influencing the price of an investment. A bullish signal was generated on May 3 when the signal-lines crossed. This same MACD indicator is the focus on the following Apple stock chart, using a monthly scale.
Chart courtesy of StockCharts.com
The AAPL stock chart above uses a monthly scale in order to smooth out the signals that are generated. The rule of thumb states that longer-term price signals carry more weight and, as a result, my analysis always begins by examining the longer-term price chart.
It is very difficult to dispute that the MACD indicator using a monthly scale is an effective indicator. Each and every time a bullish signal was generated, the price of Apple shares appreciated quite considerably.
A new bullish cross was generated in December 2016, serving to suggest that bullish momentum is now influencing apple shares and that, as result, the path of least resistance is geared toward an appreciating stock price. On average, a bullish MACD signal has suggested that months of gains should follow.
These gains have all come within the confines of an ascending channel. This channel is created by using two upward parallel-sloping trend lines that represent support and resistance. Support is created by connecting the troughs on the price chart, while resistance is created by connecting the peaks on the price chart. This channel has successfully contained the price of Apple as it oscillates between these levels of price support and resistance.
Every bullish indication generated by the MACD signal has been effective in suggesting that Apple stock is set to appreciate and, in turn, this appreciation has continued until resistance outlined by the ascending channel has been met. I do not see why this will be different, and I continue to hold the view that higher prices will prevail until this level of resistance is met.
Bottom Line on Apple Inc.
Indications from the Apple stock chart are suggesting that this investment’s path of least resistance is toward higher prices. This view has been reinforced by AAPL stock’s ability to dismiss potentially damaging bearish news, and venturing on to create new all-time highs. It is my belief that this run toward higher prices will continue until, at minimum, resistance outlined by the ascending channel is met.