Nearly a quarter of the Nasdaq-100 reported earnings last week, and we’re about to get some more this week when both Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) announce their latest quarterly results. Combined, FB and AAPL stock make up another 17% of the index’s weight.
For its part, Apple shares — the single largest holding of the Nasdaq-100 — are up 24% year-to-date, and any meaningful move following its Tuesday, May 2, afternoon earnings report likely will offer an attractive trade setup.
The Nasdaq-100, which frequently is represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ), rallied about 2.5% last week on the back of earnings from Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and other big tech names, further stretching its year-to-date rally. Through this lens, Apple and Facebook’s earnings reports this week could either further confirm the seemingly relentless run, or lead to a pause in the trend.
When I last mused about Apple stock, on March 9, I said that while shares looked stretched through a multimonth/multiquarter lens, “If AAPL can close above $140, a next squeeze higher into $143-$144 looks plausible.” Shares reached this price target a couple of weeks later, and have been trading within a 5-point range ever since.
As I always say, to understand what an index is doing or where it may trend in the near- to intermediate-term, one must understand what its largest constituents are doing. So, let’s gain some perspective in Apple.
AAPL Stock Charts
On the multiyear weekly chart, we see that Apple began its latest rally in November 2016 following the U.S. presidential election. By February 2017, this led to a break past its previous all-time highs set in 2015.
Such multiyear breakouts more often than not ultimately see a retest of previous resistance (i.e., the $130 area) before continuing higher. Although AAPL stock has been in consolidation mode for the past month and a half, it has yet to offer any price weakness, much less any retest of said technical resistance.
From a momentum perspective, the MACD oscillator also looks increasingly stretched. Thus, in my eye, this is a subpar area to chase Apple shares higher, from an intermediate- to longer-term perspective.
On the daily chart, we see that the past few weeks of sideways movement has allowed the 50-day simple moving average (yellow) to somewhat catch up with the stock. Furthermore, shares now have well-defined resistance around $145 and support around $140.
Also note that the options market currently is pricing in a roughly 5-point move for AAPL stock following its report.
A post-earnings rally within these 5 points that also sees the stock close near the daily highs on Wednesday, May 3, might offer a squeeze trade higher toward $155 in the near-term.
On the other hand, should AAPL stock break and hold below the $140 area on a daily closing basis following earnings, a better consolidation and mean-reversion move lower toward $130 could be in the cards.
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