The weekly chart of Apple (AAPL - Get Report) shows the stock forming a head and shoulders top in the first half of 2015 and then, one year ago this month, breaking below neckline resistance. This resistance level was also being reinforced by the 40-week, or 200-day, moving average, and when they gave way, the stock dropped back down to the 50% Fibonacci retracement level of the 2013 low and the 2015 high.
Apple was able to bounce as sharply as it had crashed and return to retest the average -- and then repeat the process of lower highs above horizontal resistance, forming a large triangle pattern. The stock retested pattern support as recently as early this month and then rallied back up to resistance with the help of this week's earnings report. This movement has created a cycle of 19-week highs, and it is currently at another cycle high point in time. Moving average convergence/divergence is in slight bullish divergence to price, but the accumulation/distribution line has been tracking lower and is under its 21-period signal average.
On the daily chart, the earnings gap higher on Wednesday actually closed the previous earnings gap lower in April, opening on the 200-day moving average, then moving up the trend line and finally closing back where it began, forming a large range dark candle. In Thursday's session, it opened on the average and rallied up to the trend line and managed to close near its high, forming a large white candle. The recent price action has taken the relative strength index up to its overbought border, and moving average convergence/divergence on this time frame is tracking higher and above its center line. While volume spiked above its 50-day moving average on Wednesday, it moderated, and Chaikin money flow remains in negative territory.
Apple shares are facing long-term resistance at a cycle high point, and a breakout from triangle resistance will have to be confirmed by follow-through price action and a significant jump in overall volume and positive money flow. Traders should be patient and disciplined and let the stock tell them when to enter a long position. If it does break out and continue to move higher, it will have reversed a long-term downtrend, and there will be plenty of time to jump on board.
We have always told members to own, not trade, shares of Apple and after listening to the company's conference call, our message remains unchanged. We would encourage members who own the name to stand pat for now - - we would be neither buyers nor sellers into the rally -- as investors and analysts alike digest the matrix of information, color and data.