Interactive Investor

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

20th September 2021 09:54

John Burford from interactive investor

Loading

Share on

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.

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.

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.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up