Apple shares may not be ripe enough to pick just yet
Ken Odeluga August 25, 2015 9:17 PM
<p>It’s not clear what finally prompted Apple CEO Tim Cook to make his first public comments about the iPhone maker’s sliding shares, but his words on […]</p>
It’s not clear what finally prompted Apple CEO Tim Cook to make his first public comments about the iPhone maker’s sliding shares, but his words on Monday did wonders.
As this article was going online, AAPL was 5.3% higher, having already built momentum of 6% pre-market.
Cook broke the feedback loop…
Perhaps Cook was ‘encouraged’ to drop his usual cautious approach to public comments after AAPL trashed the remainder of gains since end-June 2014, following sustained sell-offs from record highs in February.
Or, perhaps it was the apex of market panic on Monday that triggered ‘Circuit Breakers’ in Dow and S&P futures, threatening to wind the negative China->sentiment->Apple feedback loop even tighter.
There’s little doubt that market fears about China’s importance to Apple are well-founded.
Apple has encouraged investors to conclude that its new products—Watch, Music, Pay—are relatively immaterial to its medium-term growth prospects, and therefore their less-than-spectacular traction so far can be disregarded, for now.
But Apple has latterly depended on China for a quarter of its revenues, equating to $59bn of sales forecast for 2016.
Coincidentally, that’s almost exactly half of the market value Apple shares have shed since 27th February, falling 25%.
“Obviously I can’t predict the future, but our performance so far this quarter is reassuring.
Additionally, I continue to believe China represents an unprecedented opportunity over the long term,” Cook told CNBC.
…But did he break Apple’s fall?
Investor reaction was unmistakeably positive and almost instant—with a noticeable impact on the flailing Dow Jones Industrial Average too.
Trading was still guarded—the stock ended off Monday highs—but it closed an impressive 8.7% higher, its biggest one-day gain for months.
Tuesday’s follow through—with a little help from Apple friend China, which earlier trimmed mandated bank reserves—took the stock above a closely watched interval from the new 2015 low.
(Shares also sidled back above the uptrend from last October).
The next important hurdle would be 50% of the decline since February ($113) which will offer resistance after previously supporting.
Please click image to enlarge
AAPL Touch 200-W
However, given that Western markets had already bounced before China intervened, and that its central bank did little to address the underlying cause of the market rout, Apple’s and the wider equities rally, could soon wilt.
For Apple stock in particular, note that the surest guarantee for years that it has found a floor has been its arrival at a much longer-term moving average than found in its daily chart.
With support from a nearer-term trend—between June and last Friday–broken, the next proven threshold that may hold is AAPL’s 200-week moving average.
Please click image to enlarge
It withstood major tests in April and June 2013.
Some investors may not be convinced that the stock has definitively bounced until it pays homage to that line.
The 200-WMA stood some $20 away at $88.43 as this article went online.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.