Can Apple Stock Hold New Highs?

Dow component Apple Inc. (AAPL) has rallied to an all-time high ahead of third quarter earnings, scheduled for release after the close on Oct. 30. The breakout has caught many market watchers by surprise after months of mixed action throughout the big tech universe, raising the odds that the Nasdaq 100 will follow suit in the coming weeks. Even so, a failed breakout can't be ruled out in this crazy market, given catalysts coming online between now and December.

The rumor mill has been especially kind to the tech icon this quarter, with whispers about healthy iPhone demand ahead of next month's eagerly awaited Apple TV+ streaming service. Wall Street analysts expect the initiative to add substantially to profits in coming years, allowing the company to diversify income away from a rapidly maturing product base. The success of the Apple card launched in August has also stoked optimism, bringing skeptical investors off the sidelines.

Of course, trade tensions with China remain the wild card in this equation because the company could be targeted if negotiations break down once again. Apple needs China to make quarterly revenue numbers, and any loss of access could be devastating to the tech giant's bottom line. A lot depends on the U.S. administration's final verdict on Huawei, which is intimately intertwined with the current impasse.

The reaction to third quarter earnings will also dictate the stock's fate, with optimism likely to translate into even higher prices. Wall Street expects the company to report a profit of $2.83 per share during the quarter on $62.86 billion in revenues. Market players are likely to forgive and forget an earnings miss if it isn't too severe, due to a narrow focus on initiatives hitting the balance sheet in coming quarters.

AAPL Long-Term Chart (1997 – 2019)

A multi-year downtrend posted a 12-year low at a split-adjusted 46 cents in 1997 and gave way to a recovery wave that broke out to new highs at the turn of the millennium. The rally topped out at $5.37 a few months later, marking the highest high for the next five years, ahead of a bear market decline that hit a six-year low in the second quarter of 2003. Committed buyers then took control, generating a healthy uptick that completed a round trip into the prior high in 2005.

An immediate breakout signaled the start of a fruitful period that ended in the upper $20s just before the 2008 economic collapse. The stock held up relatively well during that period and rallied to new highs a year later, assuming the market leadership mantle for the first time. It has posted just three corrections in the past nine years, holding support at the 50-month exponential moving average (EMA), including last December's freefall to a 20-month low in the $140s.

AAPL Short-Term Chart (2017 – 2019)

The on-balance volume (OBV) accumulation-distribution indicator highlights elevated risk for trend followers in the coming weeks because it's grinding below the August 2018 high, failing to break out with price, while buying pressure since June 2019 barely registers in the daily view. This configuration points to a lack of sellers rather than enthusiastic buying interest, exposing greater downside if a negative catalyst hits the ticker tape.

The inevitable downturn, whenever it comes, could offer a low-risk buying opportunity when it reaches the rising 50-day EMA near $220. That indicator is narrowly aligned with a rising trendline in place since May, increasing the odds that the level will attract committed buying interest. It's also a contrarian call because the stock will need to "fail the breakout" by undercutting the 2018 high in order to reach it. Traders exiting on that bearish signal may regret their actions.

The Bottom Line

Apple stock should hold new highs in the coming months, barring a final breakdown in U.S.-China trade talk negotiations.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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