Why Apple stock is going to fall?


  • Apple stock remains in a sideways range with little movement.
  • AAPL stock needs to break out of the range.
  • AAPL looks bearish but is consolidating near highs.

Apple stock continues to be fairly quiet and rangebound despite some reassuring inflation data from the US on Wednesday. That inflation data was still pretty high but not as bad as economists had been fearing. The market briefly rallied before the summer lull set in. Apple being the S&P leader should have pulled along but instead, everything seemed to return to the grind higher as the session wore on. Apple had a tiny 119 tick range from high to low and the S&P SPY was also flatlining. Apple stock eventually slumbered to the close at $145.86 for a small gain of 0.18%. Most stocks were quiet with only the meme names once again providing some volatility and even that was way down on their peak. 

Apple has now put down several days of low volatility with small daily ranges. Generally, this is a sign of something waiting to happen, a coiled spring. Eventually, something will occur to uncoil the spring and cause a breakout.

Apple key statistics

Market Cap $2.4 trillion
Enterprise Value $2.3 trillion
Price/Earnings (P/E) 29

Price/Book

38
Price/Sales 9
Gross Margin 41%
Net Margin 25%
EBITDA $112 billion
52 week low $89.14
52 week high $150
Average Wall Street rating and price target

Buy $165

 

Apple released results at the end of July, and they once again were comfortably ahead of expectations. Back in late April Apple beat estimates by 40%. This time in late July, earnings per share (EPS) beat by 30% and revenue was also well ahead of forecasts. However, the stock has yet to see solid follow-through. Apple stock pushed to a record high on the announcement but was soon trading lower and has remained in the mid $140s since. This may be a consolidation phase before a new phase of the bullish trend or it may be a more worrying double top formation at $150, with two tops from July 15 and 27.

Apple stock forecast

The monthly chart is giving us an indecision candle, no surprise but the failure to break July’s $150 top begins to look increasingly bearish. This double top is clearer in the daily chart. A double top formation is not confirmed until the stock breaks below the first retracement from the initial top. In the case of Apple, this is at $141.67, the horizontal line shown for clarity.

The Relative Strength Index (RSI), Commodity Channel Index (CCI), and Moving Average Convergence Divergence (MACD) are all trending lower from the first peak at $150 and did not match the second peak or double top. Apple was also cautious on the post-earnings conference call about outlook and guidance.

We are sticking with our bearish call based on the bearish earnings call, bearish divergences and declining volatility. This can be well played using options as volatility will increase on a breakout in either direction. Although usually, markets fall more dramatically than they rise. A $135 put for August 27 costs about $0.30 cents per share. If Apple breaks $141.67 it should move pretty quickly towards $133.80. If you are bullish and see a breakout to new highs then a $155 call for August 27 costs $0.19cents per share. 


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