Apple Inc. (NASDAQ: AAPL) shareholders cheered the company’s recent Q3 earnings and revenue beat, but one look at the stock’s chart shows that Apple has a lot of technical resistance to overcome in the short-term and could potentially be in the late stages of a very bearish technical pattern. Here’s a look at the hurdles Apple is currently facing from a technical analysis perspective.
The head and shoulders
Many chart technicians focus on very short-term trading patterns and trends. However, focusing too much on the short term can leave you blind to powerful longer-term formations that could be forming in the charts.
Apple may currently be a perfect example of this mistake. On a two-year chart of the stock, Apple appears like it could be forming a broad head and shoulders pattern, a bearish technical formation that typically means the end of a long-term rally. Prior to early 2015, Apple’s stock had been in a strong uptrend since mid-2013.
The potential left shoulder on in Apple’s chart was the stock’s peak at $118.25 in late 2014. The broad head of the formation was its climb to $130+ throughout 2015. After pulling back to the $107 range (aside from its brief one-day drop to $92 on the Black Monday selloff in August), the post-earnings rally has once again carried Apple to around $119. This level is almost exactly the peak of the left shoulder of the formation and could represent a short-term top in Apple’s stock.
Not only is Apple facing resistance at the $119 level from the head and shoulders pattern, the stock is also nearing its 200-day simple moving average at $120.95. In addition, the 50-week SMA is currently at $119.47. All of these factors combine to make the $119-121 region a significant source of short-term resistance for Apple.
As if the head and shoulders formation weren’t bad enough, Apple’s peak in July at $132.37 was followed the next day by a bearish engulfing candle.
This candle, which is another signal of a bearish reversal, can also be seen in Apple’s weekly chart as well. This formation offers yet another piece of evidence that Apple’s stock may remain under downward technical pressure for some time to come.
The chart below includes the four major support (green) levels and resistance (red) levels currently found in Apple’s chart.
If the $120 region does in fact hold as resistance, the next level of support for the stock could be the $105-107 level that has held (with the Black Monday exception) since August of 2014. Below that level, Apple has very little support all the way down to the $95 region.
However, if Apple rides its earnings momentum significantly above $120, the head and shoulders formation would be broken and a re-test of $133 resistance could soon be on the way.
There’s no question that the next couple of days will be critical for Apple shareholders from a technical perspective. The direction the stock moves within the next week could make the difference between a bullish breakout or the continuation of a downward longer-term trend.
Disclosure: the author holds no position in the stocks mentioned.
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