Apple Expected to Face Headwinds

Amid the anticipation for Apple’s earnings report after the bell, a number of people already predict some downside risks for its stock.

According to one technician, the problem manifests itself with the charts telegraphing mixed signals.

“Anytime I have mixed readings we’d rather side cautiously,” said Ari Wald, who is the head of technical analysis at Oppenheimer. “We think there is some risk that Apple could be in store for some additional near-term losses.”

The world’s largest company by market capitalization has already faced a ragged start this year, declining by over 1 percent since 2018 kicked off. Apple’s shares have plummeted 8 percent from 52-week high that was reached in mid-March. This put them just outside the correction territory.

According to what Wald’s charts show, this slide could continue.

“The stock’s 200-day moving average does a great job picking up what the trend is and we can see there’s been a real noticeable slowing in that trend through the course in recent months,” said Wald. “After a very strong uptrend in 2017 we’re seeing the ascent of that 200-day moving day average begin to slow.”

A week ago, the company slipped below its 200-day moving average after it hovered above the said level since the sell-offs in early February. At present, it stays 1 percent below that trend line. The business’s shares have been seen an uptrend in its 200-day moving average since September of 2016.

“Once you start to talk about slowing momentum you do open up the risk that the slowing momentum could then turn into negative momentum,” stated Wald, saying that he would “stay away” from Apple at this point.

Meanwhile, Wald is not alone warning about such risks prior to Apple’s earnings. The options market also exhibits signs of jitters among investors, according to Stacey Gilbert, who is the head of derivative strategy at Susquehanna.

“If we look at the implied move, it’s roughly 5 percent, and this is a touch higher than what we typically see for Apple,” said Gilbert. “Over the last four quarters, the close-to-close realized move has been closer to 3 percent and if you go back eight quarters, you’re getting closer to 4 percent.”

In addition, Gilbert wasn’t surprised about the extra risk being priced in this quarter. Nearing the earnings report of Apple, analysts have expressed worries about the slowing iPhone sales and consequently revised their estimates. Some of those that that have been surveyed anticipate the sale of 53 million iPhone over its March-ended quarter, 4 percent higher from a year earlier.

“The majority of the flow is focused on protective puts,” stated Gilbert. “If Apple struggles to get over the already lowered bar expectation, I think investors are much more concerned about the downside here. We are not seeing much positioning at all for anyone looking for a relief rally.”

Apple is set to release its fiscal second-quarter earnings report after today’s bell. Market participants expect the California-based company to report a 25 percent increase in profit over first quarter of 2018. The figure is a trifle higher than the blended earnings growth rate on the S&P 500. Meanwhile, sales are expected to rise to almost 16 percent.

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