What’s Happening?

Apple reports earnings after US markets close on January 26. It’s seasonally the biggest quarter for the year for Apple. Because of this, results and guidance can set the tone for trading in the smartphone giant through much of the year until its next wave of product launches in the fall.

 

Fundamentals:

EPS Street                               $3.23               5.7% growth

Sales                                        $76.6B             2.8% growth

Forward P/E                            10.16

Source: Bloomberg

First up is Apple, who faces a make or break quarter. The company has been the leading tech company for the last several years but even though sales remain strong, the stock has been struggling as traders are increasingly wondering what is going to be The Next Big Thing to drive the next phase of growth. 

Profit warnings from multiple Apple suppliers have the market concerned that Apple has cut orders, a possible precursor to the long-feared top in iPhone sales growth. The iPhone makes up two thirds of Apple’s revenue and the dependency is rising, even though Apple has released and updated other product lines. Annual sales grew 28% last year so the 30% fall from the record high maybe overdone. Still, the likelihood is, if iPhone sales growth falls, so does Apple’s share price.

 

Technicals:

Over the last year or so, a huge head and shoulders top has been forming in Apple’s shares price with a quadruple top head emphasising a massive wall now in place at $124.25.

Since the summer, the shares have been trending lower, completing a right shoulder then breaking the neckline and retesting it as new resistance to confirm the start of a new downtrend.

This big trend change in the share price suggests traders are increasingly thinking that the company’s high growth period is ending and that it is maturing again which could erode its premier stock status.

Currently trading near $100.00, initial support appears near $94.60 a 62% Fibonacci retracement of a previous uptrend. Should that fail, $90.00 could be tested initially but a full round trip back to $70 couldn’t be ruled out either.

To call off the bearish scenario, it really needs to retake $105.00 with next resistance near $109.75 if successful.