Shares of Apple Inc. (NASDAQ:AAPL) rallied a strong 6% on Wednesday following the company’s latest earnings report. While the rally was impressive, AAPL stock is now bumping into some critical technical resistance that bulls and bears alike should be aware of.
Simply put, Apple’s near- to possibly medium-term upside is limited at best.
Apple’s revenues in the latest quarter came in at a record $78.4 billion, which in part was helped by strong holiday demand for the new iPhone 7 series. These numbers are impressive, and I continue to be a longer-term believer in the company — particularly around the potential of AAPL being able to monetize deeper on the devices ecosystem through more services.
When I last discussed shares of Apple on Dec. 28, 2016, I offered that if AAPL stock could clear above the $118 price level, then a next upside target around $123 would come into sight. Apple met and surpassed this target on Wednesday following the earnings announcement.
From that perspective, Apple shares have now reached an important upside price target.
AAPL Stock Charts
Let’s take a step back and look at the multiyear weekly chart of AAPL stock. We see that despite the big swing lower from the 2015 highs into the mid-2016 lows, and most recently back up toward the 2015 highs, Apple has, largely speaking, not really accomplished much since early 2015.
Bulls, however, note that the May 2016 lows coincided with critical technical support made up of horizontal support (lower purple-dotted line) as well as the 200-week simple moving average (red). Equally important, on the other hand, is that after Wednesday’s post-earnings rally, AAPL is now within a few points of these aforementioned previous all-time highs from 2015. Through a technical lens, this could offer up as much resistance as the 2015 lows offered support.
In other words, before Apple stock can sustainably break to new all-time highs, a consolidation phase most likely is in order.
Looking at the daily chart, we see that since mid-November 2016, AAPL stock has now rallied approximately 25%, which is not a small move for the stock to accomplish in a matter of two-and-a-half months.
A simple yet accurate observation through the lens of technical analysis is that old all-time highs are not easily overcome on the first try, particularly if the stock has not consolidated below or near those previous all-time highs for some time.
Apple’s current chart thus is in dire need of some consolidation before it can make a better attempt at fresh all-time highs on a more sustainable basis.
How to Trade Apple Stock Here
I see two specific trades setting up:
- If AAPL stock breaks and holds below Wednesday’s intraday lows around $127, then the stock could be played from the short side for a mean-reversion move back into the mid- to low $120s. Alternatively, options traders could also look to sell out-of-the-money call spreads on the stock at that time.
- Quicker traders could look to buy AAPL stock for fast profits should the stock push and hold above Wednesday’s intraday highs around $130.50 for a move toward the 2015 highs around $133.
Either way, upside in AAPL stock through a multiweek/multimonth lens is likely limited. Trades should be constructed accordingly.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.
