Keep an eye on the $105.00 level for mighty Apple, Inc. (NASDAQ:AAPL). It’s an important “line in the sand” for AAPL stock.
Over the past few years, the Cupertino-based company has become one of the world’s most popular companies. Tim Cook, Apple’s CEO, has been able to fill the big shoes of tech visionary Steve Jobs. This has helped AAPL stock climb from less than split-adjusted $40.00 per share in late 2011 to a recent high of $130.00.
However, some tech experts think this incredible story could be coming to an end. Apple isn’t the first company to make investors rich from an innovative product (or in the case of Apple, incredibly rich with many innovative products). But eventually, rivals are due to catch up.
As categories mature, profit margins are squeezed. And big stock price declines usually aren’t far behind. Could this be Apple’s fate? Let’s take a look at the charts.
Chart courtesy of www.StockCharts.com
Exciting stories become popular with the investment public—which tends to make them extremely overvalued. Apple could be one such company. Today, AAPL stock has $658 billion in market capitalization. This is a level that only makes sense if the firm can continue to crank out incredible product after incredible product.
Mr. Market might be growing skeptical. Apple stock appears to be forming a head and shoulders top, a reliable reversal pattern that often signals the end of a market move. This formation has three main phases:
- Shoulder: The first step is the pattern of the left shoulder. This is formed when the security reaches a new high and retraces to a new low.
- Head: Apple formed the second step of the formation when shares broke out to a new high in March, then retraced back near the low formed in the left shoulder.
- Shoulder: The third step is the pattern of the right shoulder, which is still in the process of forming. The right shoulder is complete when Apple stock retraces all the way back to support at $105.00.
The formation is complete once the price falls below the neckline. In the case of Apple, this is the $105.00 support line formed at the level of the lows reached at each of the three retracements.
More worrying, though, is volume. Over the past few months, we’ve seen significantly higher volume on down days and light action when shares advance. This is exactly the opposite of what you want to see, indicating AAPL stock is under distribution.
Who knows what is going on in Apple headquarters; nobody knows what Tim Cook has up his sleeve. Can he keep cranking out blockbuster products like “Pez” candies?
Maybe. Maybe not. This company has made fools of the doubters before.
However, Apple hauled in $39.5 billion last year. Given the fast product cycles in technology, that is a lot of dollars to replace every year with new products—let alone grow earnings.
Regardless, the charts provide an early warning that something might be amiss long before problems crop up on the income statement. Should AAPL stock complete this head-and-shoulders pattern, there isn’t much support until shares hit $70.00 or $75.00.
Bottom line; keep a close eye on this $105.00 level. If AAPL stock breaks below this point, look out below!