Three Possible Reasons for the Next Apple, Inc. Stock Breakout

After a big run-up, Apple stock has been in a two-month rut, but these three things could pull AAPL out of its malaise

By Chris Fraley, InvestorPlace Contributor
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Apple, Inc. (NASDAQ:AAPL) had a major resurgence in 2017. But in the last two and a half months, the Apple stock rally has stalled.

Since zooming from $156 to $176 in just two weeks sandwiched around Halloween, Apple stock has scarcely budged, seesawing between $169 and that $176 resistance. During that time, the Nasdaq has improved nearly 7%.

Why the slowdown in AAPL? Perhaps the best explanation is that the stock is simply taking a break after rising nearly 50% in 2017. Wall Street appear to be in wait-and-see mode. But what is it waiting for?

Here are three upcoming events that could potentially resuscitate the rally in Apple stock — or, possibly, prompt it to cough up some of last year’s big gains.

1. Fourth-Quarter Earnings

The reason for AAPL’s big November jump was that it beat third-quarter earnings estimates by 10.7%, growing more than 11% year over year. Fourth-quarter earnings (due out Feb. 1) are expected to be even better, with analysts anticipating better than 12% growth. Another bottom-line beat could be enough to finally push Apple stock above $176.

2. The HomePod Release

Delayed from its planned December release, Apple’s new HomePod is its version of the Amazon (NASDAQ:AMZN) Echo. Powered by its signature Siri technology, the HomePod is expected to have better audio quality than the Echo or the Google (NASDAQ:GOOG, NASDAQ:GOOGL) Home, and will be compatible with hardware for the HomeKit, Apple’s new smarthome product.

Apple execs have been vague about the HomePod’s release date, saying it will be out some time in “early 2018.” That should only enhance investors’ response to Apple stock when the company does finally unveil it.

3. A Market-Fueled Jump to $177

Despite all the false starts AAPL has experienced over the last two-plus months, the stock appears to building up a full head of steam again. Apple stock is up 3.5% since the calendar flipped to 2018, bouncing off support at $169. A few more up days from the market, tech stocks in particular, could be enough fuel to extend AAPL to $177 (a mere $2 higher than it is now).

If this happens, investors might not need to wait for the HomePod release or fourth-quarter earnings. A break above $176 could be viewed by many as a bullish move, convincing those playing the waiting game with AAPL to jump in early.

Apple Stock Catalysts Could Also Be Pitfalls

Of course, all three of those potential catalysts for an Apple stock breakout could also be headwinds.

Should fourth-quarter earnings fall short of lofty estimates, as they did several times in 2016, it could prompt a short-term sell-off.

If the HomePod release gets delayed again, or perhaps disappoints in some way when it does get released (as some recent iPhone releases have), it could convince a few of those “wait-and-see” investors to trim their AAPL positions.

And, finally, if the latest mini-run-up in Apple stock fizzles again, and it fails to push above $176, this time $169 support might not hold, especially if the long-feared correction in the broad market finally hits. Given how overvalued the market is by traditional measures — our own Lawrence Meyers wrote that this is the most overvalued it has been since the 1929 market crash — a sudden sell-off across all sectors likely stands as the biggest obstacle to a resumption of the Apple stock rally.

Regardless, I still like AAPL as a long-term play. But the short-term picture is a bit murkier, with a thin line between the potential headwinds and tailwinds.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

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