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Consumers and investors alike have to come to expect big things from Apple (NASDAQ: AAPL) and the company’s product announcement events. The company held one on Monday, and by most accounts, the results were underwhelming.
The company announced a new phone that is actually a beefed up version of an old model. The iPhone SE was introduced, but most accounts I have read weren’t that impressed with the new phone. There was one analyst that praised Apple for introducing an entry-level phone with a price tag under $400, which is cheap by the company’s standards.
Regardless of how investors feel about the fundamental news and how they view the new/old product launch, the technical picture shows that Apple shares are likely to face two layers of resistance in the coming weeks.
On the daily chart we see a downward-sloped trend line that connects the high from last summer with the high from last fall. That trend line is hovering just above the $108 level currently, while the price of the stock is hovering in the $105-$106 range. We also see that the 10-day RSI is in overbought territory and has been since the beginning of March. The daily stochastic readings are also in overbought territory, but they did just make a bearish crossover.
The pattern in the stochastic lines is similar to the pattern we saw in October, when the lines moved into overbought territory, dipped back down and then rose again before making a bearish crossover and heading lower in early November. During this time period, the stock fell approximately 10%.
If we look at the weekly chart, we see a trend channel with the trend line from the daily chart acting as the upper rail of the channel. We also see that the stock is facing some resistance from its 104-week moving average. The moving average and the upper rail of the channel seem to be destined to converge in the $108 area, forming two layers of resistance for the stock to fight through.
Apple shares have struggled over the last year. From February 2015 through July 2015, the stock was stuck between $120 and $130, but from July through the low in February 2016, the stock fell almost 30%.
The recent rally has lifted the stock out of oversold territory on the weekly chart, but something that bothers me is that despite the stock’s struggles, the sentiment has remained bullish toward the stock. The short interest ratio is rather low, at 1.14, and 37 out of 47 analysts still rank the stock as a “buy.” Only one analyst ranks the stock as a “sell.”
Given the lackluster “new product” announcement Monday and the layers of resistance Apple shares are facing right now, I look for Apple to resume its downtrend in the near future. I would look to short the stock in the $105-$108 range with a target move down to the $92 level at the very least. As for a stop-loss point, should the stock close the week above the $110 level, I would look to cover the short.
The Ghost of Steve Jobs
Before he died, Steve Jobs gave an interview to The New York Times where he revealed his desire for Apple to create something unlike anything the world had ever seen. Though Jobs is no longer around, his dream for this technology is alive and kicking. According to global consulting firm KPMG, this technology “could provide solutions to some of our most intractable social problems.” And Morgan Stanley believes it could save the American economy $1.3 trillion each year.