Chart of the week: are Apple shares about to race past record high?

Analyst John Burford studies Apple's chart and reveals where he thinks the shares are heading next.

5th July 2021 09:45

Analyst John Burford studies Apple's share price chart and reveals where he thinks the tech giant is heading next.

Is Apple retaining its shine?

Last September, Apple (NASDAQ:AAPL) shares surged to an all-time high in the $140 area. Since then, they have basically gone nowhere. But to a card-carrying chart reader, the price path taken since then is highly instructive – and potentially revealing.

As one of the leading tech titans, it is a major force of both the Dow Jones and the Nasdaq indices. Interestingly, while the Nasdaq has been in a near-vertical climb off the Corona Crash lows and was making new record highs in the last two weeks, the Dow has lagged badly and still trades under its 10 May high.

That is a lengthy divergence of eight weeks – and could be an important indication that a correction lies ahead – unless the Dow can improve soon into new high ground.

Of course, this divergence has been partly the result of a switch into pandemic-defying tech shares and out of traditional 'value' equities as represented in the Dow. But just as a pendulum reaches a limit before swinging back, this process will reverse at some point. As always, the question is: when will value trump tech?

This is the long-range weekly chart from 2018:

Past performance is not a guide to future performance.

I have labelled the August 2020 high as my wave 1 (or A) and, from there, the market corrected down to wave 'a', rallied in wave 'b', then corrected down again in wave 'c', then up in wave 'd' and finally dipping in wave 'e'.

The whole pattern is a classic five-wave wedge/triangle. These almost always appear in either a fourth wave position of a five-wave impulse pattern, or in a B wave of an A-B-C pattern. My view is it describes a B wave – and these are corrective.

From the 'e' wave low, it then started its latest rally phase and has now broken above my minor trendline in a bullish show of strength.

Note the lower trendline has a Prior Pivot Point (PPP) (see pp 52 – 53 of my book) and all of the subsequent dips to the waves 'a, 'c', and 'e' lows were held precisely at this line. This made it a solid line of support. Any future dips to this line – currently at the $126 area - would likely hold. But if the market could break solidly below it, all bullish bets are off.

For now, the trend is very much up and a new all-time high above $145 seems highly likely (currently $140). The next earnings report is due 29 July. I consider it a fool's errand trying to estimate not only the details of the earnings to come, but also the market reaction to whatever emerges.

We could see a run-up in Apple shares into this report – and then a re-assessment. Many may well be taking major profits in this event.

There is little doubt that bullish sentiment remains at peak levels and only a small disappointment could create a little havoc in markets generally.

Cash levels remain at exceedingly low levels in Money Market US funds. Cash is Trash is the watchword. To me, this is a warning sign that any move back into cash could well produce outsized corrections in equities.

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.

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