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No rosy prospects for Apple and Amazon’s earnings

Apple

The article is written by Tina Teng & Kelvin Wong, Markets Analyst, CMC Markets APAC & Canada

Both Apple and Amazon’s earnings reports are due for release after the US closing bell on Friday (Asia Pacific time), which will be the last set of earnings reporting from the mega-cap tech firms for the second quarter. Apple has posted the strongest performance among the US big tech companies, with a 17% drop year-to-date, while Amazon shed -32% during the same period. While a slowdown in their growth cannot be avoided under a bleak macroeconomic backdrop, these tech giants’ future guidance will have a more significant impact on their respective share price performances, with possible positive outlook announcements for both companies.

Apple – softened demands in China

Apple has managed to beat earnings expectations in the first quarter, with a 9% revenue growth following its largest annual growth of 11% in the final quarter of last year. However, due to supply chain woes, the company warned of an $8 billion loss in sales for the second quarter. Without giving guidance for the second time in a row, Apple’s upcoming earnings may not look rosy due to the ongoing economic headwinds, with the analyst estimates of only a 2% growth in revenue year-on-year, which will translate to the slowest quarterly growth in revenue since the first quarter of 2020. The sales income is forecasted at $82.8 billion, according to FactSet consensus. Earnings per share is being forecasted at $1.16, or a decline of 11% from a year ago, also much lower than the first quarter’s figure at $1.52. Apple also announced a slowdown in hiring and spending for the new fiscal year due to economic uncertainties.

Softened demands for Apple’s products due to inflationary pressure and lockdowns in China might have been the major factors that restrained its sales growth. According to Bloomberg and Canalys, a research firm, global smartphone shipments fell by 9% in the second quarter due to global headwinds, with Chinese companies recording a double-digit decline.

It is also worth noting that the second quarter is usually the end of the cycle for the older generation of Apple products, hence, buyers tend to wait and withhold their purchases for new product releases due in the third quarter; an indication that the outlook for the second half of the year might be positive.

Technical analysis – Corrective rebound phase from June low remains intact for Apple (AAPL)

Source: CMC Markets as of 26 Jul 2022 (Clieck to enlarge the chart)

Since its 16 June 2022 low of 129.07, the share price of Apple (AAPL) has managed to stage a rebound of +20% to print to a recent high of 156.26 on 22 July 2022 which has retraced close to 50% of the prior major downtrend phase from 4 January 2022 all-time high of 182.88 to 16 June 2022 low (a total loss of -29%).

In the past three sessions since 22 July, AAPL has staged a pull-back of -3.5% which has occurred right below an intermediate resistance of 156.70 (graphical, 200-day moving average & 50% Fibonacci retracement of the down move from 4 January 2022 high to 16 June 2022 low).

Overall, this ongoing pull-back in price actions has not morphed into a down leg that can potentially kickstart another major downtrend phase (a break below the 16 June 2022 low of 129.07) as the daily RSI oscillator has not reached its extreme overbought level of 79% and no bearish divergence signal at this juncture. Hence, the medium-term upside momentum remains intact.

If the current pull-back motion manages to hold above the 141.80 key medium-term pivotal support (also close to the 50-day moving average), AAPL may stage another leg of corrective rebound towards the next resistance zone at 162.30/165.50.

However, failure to hold at 141.80 with a daily close below it invalidates the corrective rebound scenario to open up scope for another impulsive down move sequence towards the next support zone at 126.60/118.45 in the first step.

Amazon – a slowdown in the AWS cloud business

The share price of Amazon has been under downside pressure after Walmart slashed its profit guidance recently due to softened consumer demand, which may lead to a similar occurrence for the e-commerce giant’s online sales in the second quarter. Rising costs of labour and shipments are also concerns that may have a negative impact on its profit margin despite an increase in its services. Also, a strong US dollar certainly does not increase overseas customers’ demands. In addition, its rising growth segment, the AWS cloud business may also be negatively affected by the macroeconomic headwinds.

Amazon recorded its slowest revenue growth of 7% in 21 years for the first quarter, along with weak guidance due to global headwinds. A loss of $3.8 billion on its Rivian investment has also contributed to the slowdown.  Following a poor performance in the first quarter, the e-commerce giant is expected to slow down further in the June quarter, with Zacks Investment Research consensus’s forecast of $119.72 billion in revenue, that only translates to a 6% growth from a year ago. And the earnings per share are also expected to fall, which is forecasted at $15 cents for the second quarter, or a decline of 80% from a year ago.

But on the bright side, the Prime Day sales event that has been shifted to the third quarter could offer a positive outlook for the company. As the slowdown in growth may have already been priced in, any optimistic guidance could boost its share price performance. Amazon has also announced a $3.9 billion acquisition deal of One Medical, suggesting that the e-commerce is set to expand its business to healthcare and pharmacy to seek new growth drivers to increase its future revenue stream.

Technical analysis – Amazon (AMZN) sandwiched within “Symmetrical Triangle” range 

Source: CMC Markets as of 26 Jul 2022 (Click to enlarge the chart)

The recent major downtrend of Amazon (AMZN) from its 13 July 2022 all-time high of 188.63 (post 20-1 stock split on 6 June 2022) to its 24 May 2022 low of 101.30 (a total loss of -46%) has started to take a breather.

So far price actions have oscillated sideways within a “Symmetrical Triangle” range configuration. In addition, the daily RSI has staged a bearish reaction right at key corresponding resistance at the 64% level which indicates the lack of medium-term upside momentum.

Hence, prefer to adopt a neutral stance for AMZN between 129.00 and 102.40. Only a clearance with a daily close above 129.00 validates a potential corrective rebound towards the 149.70/155.85 resistance zone (also the 200-day moving average)

On the flip side, a break with a daily close below 102.40 sees a continuation of the impulsive down move sequence towards the next support zone of 86.00/83.60.


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