What This Long-Term Trendline Says About Apple

As Apple stock slumps deeper into its own personal bear market, bulls should proceed with caution

by Bernie Schaeffer

Published on Dec 11, 2018 at 7:42 AM
Updated on Dec 11, 2018 at 7:42 AM

It wasn't that long ago that Wall Street was celebrating Apple's (AAPL) record-setting incursion into trillion-dollar market cap territory -- and so the spate of recent headlines (perhaps colored with the faintest tint of Schadenfreude?) crowing that Microsoft (MSFT) had now surpassed its cooler, upscale rival in terms of total market value must have seemed rather abrupt to the ever-present contingent of AAPL faithful. In fact, as of this writing, Apple's market cap of $767.34 billion is smaller than that of both Microsoft ($800.55 billion) and Amazon.com (AMZN) ($784.12 billion), though still ahead of Alphabet (GOOGL), at $711.38 billion.

As some quick mental math will likely tell you, that sharply reduced AAPL market cap is the result of the vaunted Dow stock stumbling headfirst into its very own bear market. From its Oct. 3 all-time intraday high of $233.47, the stock has lost a total of 27.8%, as of Friday's close. In fact, a daily chart shows that AAPL gapped dramatically into bear-market status following its initial close below the "official" $186.78 threshold on Nov. 19. Since then, a rebound attempt by the equity has been rejected near the site of the pre-gap lows, with the Dec. 3 high ringing in at $184.94.

But our focus in today's column is on Apple's weekly chart, and specifically on the significance of its 64-week moving average -- a trendline that's chronologically analogous to one of our favored "under-the-radar" daily moving averages, the 320-day. Per the accompanying chart, the 64-week moving average briefly acted as resistance back in the third quarter of 2016, but then AAPL successfully tested support at this trendline in the fourth quarter of that year ahead of its lengthy 2017-2018 run up the charts.

Following that breakout roughly two years ago, support at the 64-week wasn't tested again until early in 2018, amid the bout of broad-market volatility that shook up the stock market at the start of February. At the time, the 64-week moving average was crossing through the round $150 region, and these two technical levels collaborated to create a firm layer of support to contain Apple's sell-off. (Which, not insignificantly, coincided with AAPL's first breach of its 32-week moving average, in blue, since the third quarter of 2016.) Later, an April drawdown took AAPL close to its 64-week moving average, but not quite close enough for a formal test.

Then, on Nov. 20, AAPL gapped lower on iPhone demand concerns, and opened starkly below its 320-day trendline in the process. That Friday, in the shortened post-Thanksgiving session, the stock collected a weekly finish beneath its 64-week moving average for the first time in more than two years.

Last Monday, a broad-based rally swept Apple stock above its 320-day moving average by the close, after the stock had just closed its second consecutive Friday below its 64-week trendline. But the gains last week were short-lived, for AAPL and for the rest of the equities market. And after peaking almost squarely at the site of its 64-week moving average, the world's one-time trillion-dollar wonder closed the week 5.7% lower, and just below the round $170 level.

AAPL could very well find some traction around here in the short term, as $169 is home to its year-to-date breakeven mark, and the September 2017 highs around $165 also provided a floor earlier this year. But the speed and strength with which the 64-week moving average emerged last week as a stiff layer of resistance should be cause for concern, as Apple -- until very recently, the sector-leading stock of the market-leading sector -- appears set for, at the very least, a continued period of volatile, choppy price action.

aapl weekly chart

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, December 9.


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