Why Apple's Rally May Only Be Starting

Feb. 04, 2019 11:51 AM ETApple Inc. (AAPL)29 Comments

Summary

  • Apple's shares may rise to about $182 based on the chart.
  • Investors may have been expecting far worse results.
  • Results were strong outside of China.
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Apple's (NASDAQ:AAPL) stock has rallied by nearly 20% since its Jan. 3 lows. Now the technical chart suggests that the stock can continue to recover to as high as $182. The company delivered first quarter results that were in line with its lowered guidance. However, more important was that fiscal second quarter revenue guidance was only 3.5% below analysts' consensus estimates, not the disaster the stock was indicating.

On Jan. 16, I wrote an article noting that Apple's stock was witnessing bullish momentum due to a bullish chart and options activity. Since that time, the stock has risen by 10%.

Bullish Chart

Now the chart suggests the stock continues to rise to as high as $182, an increase of an additional 7% from the current price of roughly $170 on Feb. 4. The chart shows that the stock has broken above a critical level of technical resistance at $164 and is now heading toward its next level of technical resistance at $182.

Additionally, the relative strength index has broken out of a vicious downtrend at the end of 2018. Now the RSI is trending sharply higher and is currently around 60. It would have to rise to 70 or higher before being considered overbought. It too would suggest that the stock has further to increase.

Strong ex-China

The company results were strong outside of China. The Americas saw robust growth in the quarter, rising 5% to $36.9 billion versus last year. Revenue in Japan and Europe fell 4.5% and 3%, respectively. However, China revenue fell a stunning 27%.

When digging a bit further into those results, we find that it was only the iPhone that saw revenue contract in the quarter, falling 15.5% to $51.9 billion from $61.5 billion every other segment of revenue grew. Wearables had the largest growth rising 33% to $7.3 billion and is now

Chart

Data by YCharts

This article was written by

Mott Capital Management profile picture
33.17K Followers
Designed for investors looking to stay ahead of the pack.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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