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Apple’s (AAPL) stock may be about to race back to its 2019 highs of around $215 based on recent option bets and the technical charts—a gain of about 7% from its price of around $200 on June 27. The shares of the iPhone maker have risen by over 27% so far in 2019, but are still 13.5% off their all-time highs last seen in October 2018.
One reason investors may be getting bullish on Apple is the potential for a trade resolution between the U.S. and China. President Trump and President Xi are expected to meet at the G20 summit in Japan to discuss a tentative resolution. Should a truce or pause to the current trade dispute be reached, Apple shares (NASDAQ:AAPL) could surge higher.
The Chart Points To Higher Prices
The technical chart for Apple shows that the stock is breaking out, after rising above a level of technical resistance at $198. It creates the potential for the stock to rise to around $212 to $215. At that resistance level, there is a technical gap. That gap was created the day it was announced the U.S. would raise the tariff rate on China imports to 25% from 10%, resulting in Apple’s stock falling sharply. In this case, the gap is bullish, as the stock tries to rise back to resistance.
The relative strength index is also indicating the stock rise. It started trending higher at the beginning of June and is currently at a level of 60. For the equity to be considered overbought, the RSI level would need to rise to 70 or higher.
Bullish Option Betting
The chart isn’t the only bullish indicator. The options for expiration on July 19 suggest that the stock would rise or fall by 5% from the $200 strike price, based on the long straddle options strategy. This places the shares in a trading range of $190 to $210 by the expiration date. However, the options are implying a bias for the stock to rise. The number of open calls outweigh the number of open puts by a ratio of almost 2 to 1, with 43,000 open call contracts to just 26,000 open put contracts.
Also, the July $210 calls have steadily risen to approximately 29,100 open contracts from roughly 20,800 on May 31. For a buyer of those calls to earn a profit, the stock would need to rise to around $211.30, a gain of over 5%.
Trade Tensions Weigh
Apple has been caught in the crosshairs of the U.S.-China trade war since the start. The company generates a tremendous amount of its revenue from China: through the first six months of fiscal 2019, Apple had revenue of almost $31 billion from the country, representing 21% of its total revenue. Trade tensions may have played a big role in Apple’s weak second-quarter results. Revenue in the country fell by 21.5% to $10.2 billion from $13.0 billion the prior year.
Additionally, Apple manufactures its iPhone units in China. If the U.S. decides to impose tariffs on the final tranche of $300 billion of imports it could result in the price of the iPhone rising in the U.S., or result in Apple’s margins and earnings falling. In either case, it would be bad for the company, and bad for the stock.
Apple has a lot riding on a potential trade resolution at the upcoming G20 summit. If the U.S. and China can work out an agreement, then Apple could be one of the biggest beneficiaries. With such potential benefit on the line, it would seem investors are betting the shares will rise in the days and weeks ahead. Investors better hope they get that positive outcome from the G20 summit.
Disclosure: Michael Kramer and the clients of Mott Capital own shares of AAPL
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