Chart of the week: is Apple ripe for profit-taking?

Our charts expert examines the candles for the tech giant and sees a big test ahead.

In my 5 July chart of the week for Apple (NASDAQ:AAPL), I suggested that we would see a new all-time high (ATH) above the old high of $145. 

Based on my reading of the chart, this is what I wrote: “For now, the trend is very much up and a new ATH above $145 seems highly likely (currently $140).” And indeed, the shares did rise to a new ATH on 7 September at $157. But from there, the shares have declined to Friday's close at $146.

So my question is this: is this the start of a more protracted decline? Let's look at the evidence.

Here is the weekly chart with amended wave labels (adjusted from that shown on 5 July):

Past performance is not a guide to future performance.

This chart is a chart analyst's dream! I retain the solid line of support from July but now there appears a valid trendline of resistance drawn across the tops with the third hit being the ATH just put in (wave 'e'). 

This is very pretty – and so is the five-wave nature of the pattern since the wave 'a' high back in August last year.

• Read more articles by John Burford here
• Read our six-part series on charting for beginners

Provided the $157 high can hold, this pattern is an 'ending diagonal' and these often appear right at the end of a major bull market. So now we have a clear line in the sand for my bear case – to verify it, the shares must not rise above $157.

To add to the evidence, there is a clear momentum divergence at the ATH (wave 'e') compared with that at the wave 'a' high. 

Always, momentum divergences indicate a weakening of the buying strength going into the ATH. If that continues, the power of the sellers will take over and result in lower prices.

As the decline continues, a test of the line of support in the $135 region is likely. Of course, any meaningful break of that line would herald further moves lower since the odds would swing to a more protracted sell-off.

• Subscribe to the ii YouTube channel for our latest interviews
• Open an ISA with interactive investor. Click here to find out how

A few days ago, the company launched its latest gadgets. But there were no mad buying panics at their stores, as was the case when their new product launches were greeted by overwhelming adulation a few years ago.

It seems that adding a few new bells and whistles to their range is not reviving their glory days of total market dominance. It seems Apple is a very mature company.

So could the fact that the shares are back trading at around the same level as in 2020 reflect just that maturity – and could the weak reception to the latest product launch mark a top of some kind?

With valuation still high (current price earnings ratio is 28), it seems prudent to take at least some (or all) profit around here.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.