Why Apple Stock Was Falling Monday

Why Apple Stock Was Falling Monday

What happened

Apple (NASDAQ:AAPL) is joining in Monday’s stock market sell-off. As investors respond to broader pessimism about the global rebound in new coronavirus cases, the tech giant’s share price fell by a little more than 3% in early trading – and that slide largely persisted throughout the session. As of 2:15 p.m. EDT, Apple stock remained down by 2.8%.

So what

The pandemic is one problem for Apple. Stock market analysts are another.

In twin notes Monday morning previewing the upcoming earnings release for Apple’s fiscal third quarter, analysts at Deutsche Bank said they see “strong momentum across all of its businesses,” and expect Apple to beat consensus estimates. That said, the analysts admitted that Apple is dealing with component shortages for its Macs and iPads that could dent results. In a note covered by TheFly.com, Deutsche seemed to hold out the most hope that 5G iPhone sales could save the quarter.

At the same time, however, analysts at investment bank Bernstein suggested that any beat by Apple might be only “modest” in size. Bernstein is hoping that Apple will keep market enthusiasm going by commenting on its fourth-quarter expectations, but warned that the company is more likely to give investors only vague guidelines rather than numerical guidance for the period.

Now what

So what should investors be looking for when Apple releases its Q3 numbers on July 28? On the one hand, both the top and bottom lines are expected to grow, with sales forecast to rise 22% year over year to $72.9 billion, and earnings up perhaps as much as 56% to $1 per share.

On the other hand, with investors already anticipating such strong growth numbers, it could be hard for Apple to exceed expectations. Hopefully, even a modest beat will be enough to keep investors happy.

Apple Stock Forecast: AAPL slides over 2.5% on spyware concerns and global sell-off

Apple stock retreats from record highs at $150.

AAPL releases Q3 results on July 27.

Broad markets continue to sell off on Monday.

Update July 20: Having opened with a sharp bearish gap on Monday, Apple (AAPL) lost 2.70% on the day and settled at $142.45, tracking the 152 points sell-off in Nasdaq Composite amid escalating concerns that the Delta covid strain could threaten the global recovery. Reports that spyware from Israel-based surveillance software company NSO Group is capable of breaching even the latest generation of iPhones through zero-click attacks, weighed heavily on the iPhone maker. AAPL shares fell for the third day in a row, in a correction from an all-time-highs of $149.98, as investors brace for its Q3 earnings results due out next week.

Apple stock remains in a strong bullish uptrend, but the short-term end goal looks a bit more questionable now that the broader market has turned around. We are now behind the most bullish time of the year, the first two months of July, and heading into results season with some high valuations. Can they be sustained? The investment banks certainly produced strong results, and soon it will be the turn of the tech titans. However, strong results do not necessarily mean strong stock prices. In Q2 Apple results came in over 40% ahead of Wall Street analyst expectations, but the stock fell in the days and weeks after results.

Apple (AAPL) will release Q3 2021 results next week on Tuesday, July 27.

Apple key statistics

Market Cap $2.44 trillion Enterprise Value $2.1 trillion Price/Earnings (P/E) 32 Price/Book 38 Price/Sales 9 Gross Margin 0.4 Net Margin 0.23 EBITDA $100 billion Average Wall Street rating and price target Buy $159

Apple (AAPL) stock forecast

The recent move to new record highs we have been calling for since early June has stopped out for now at $150, a nice psychological round number. There are a few reasons at play here. The market has finally started to run out of bullish momentum with S&P, Nasdaq and other indices all showing fresh losses again on Monday. The seasonality effect is now over, the first two weeks of July are the most bullish of the year. Results are next week, so many traders who have ridden the recent strong trend will close positions ahead of results. Taking a position into a big event, be it earnings or some other announcement, means increased risk and dealing with an unknown outcome. Seasoned and pro traders will likely cut risk into such an event.

Technically, the Relative Strength Index (RSI) is also overbought and has been this way from the last number of sessions. The previous high at $145.09 acts as an interim support as this corresponds nicely with the 9-day moving average. A break of this level could see a retracement back to $137-135. This is a nice strong support zone with plenty of volume to add to support from the volume profile we can see on the right of our chart. From $145 to $137, the volume is still pretty light, meaning there is not much support in evidence.

Previous updates

Update July 19: Apple (AAPL) finished Monday down 2.69% at $142.45, as fears dominated Wall Street. The Dow Jones Industrial Average plummeted over 900 points intraday, ending the day minus 725 points. The S&P lost 1.59% while the Nasdaq Composite shed 1.06%. Heating US inflation fueled concerns the Federal Reserve will have to retrieve sooner than anticipated. Additionally, the coronavirus Delta variant is rapidly spreading in the Northern Hemisphere, spurring concerns about a slowing pace of economic recovery.

A One-Two Punch Knocks Apple Stock Off The Top

Apple stock has been quickly knocked off its all-time highs, and a couple of company-specific developments may have played a role. The Apple Maven takes a closer look.

After months trying to reclaim all-time highs, Apple stock (AAPL) - Get Report finally did it earlier in July – only to be quickly pushed back about 5% off the peak in a matter of a few days.

Recent weakness in share price has been consistent with broad market softness that was largely driven by fears over the COVID-19 delta variant. However, Apple may have also suffered from a couple of company-specific pieces of news that the Apple Maven discusses today.

Figure 1: Apple logo. iStock

(Read more from the Apple Maven: iPhone 13 Could Push Apple Stock Even Higher)

Killing Apple’s mojo

On Friday, July 16, research firm Canalys issued its second quarter report on smartphone shipments. In the aggregate, the numbers were far from concerning: the industry grew year-over-year at a pace of 12%, albeit off a slow quarter of sales in 2020 marked by the first few innings of the COVID-19 crisis.

Worse off in the report was Apple. Even coming off a slow second quarter of 2020, the Cupertino company saw minimal growth in iPhone shipments in the most recent period, according to Canalys. Not only that, Xiaomi took Apple’s second spot as most popular smartphone vendor for the first time ever.

Figure 2: Worldwide smartphone shipments Q2, 2021. Canalys

(Read more from the Apple Maven: How Wall Street Enthusiasm Fueled The Rally In Apple Stock)

The other development surfaced over the weekend. Seeking Alpha reported that the iPhone could be more vulnerable to spyware than some previously thought. Researchers at the Pegasus Project believe that surveillance company NSO Group could breach Apple’s phones through zero-touch attacks.

The iPhone is not the only potential target of this and other similar breaches. But Apple arguably stands to lose most from the perception of decreased security, since the company often boasts about the iPhone’s resilience to malicious attacks – a core tenet of Apple’s defense in the case against Epic Games over the App Store.

The Apple Maven’s take

Both issues above leave Apple with a black eye, which is reflected in the stock. But the Apple Maven does not think that this is the time for panic.

For starters, the smartphone shipment data is confined to a single quarter. Growth of 1% in iPhones was pitiful, but barely indicative of a problem with the 5G upgrade cycle that could still last a few years. Also, despite Apple’s loss of market share, it is likely to have performed well at the higher-end of the spectrum – which tends to generate higher ASPs (average selling prices) and carry better margins.

Regarding security, the Apple Maven thinks that investors should expect the issue to surface often. If anything, Apple is probably better equipped to deal with the problem, since the company has the scale and the cash reserves to address it. Will iPhone sales decline because of the most recent security scare? The Apple Maven thinks that probably not, at least for now.

Sell AAPL in a hurry?

Traders might be feeling a bit uncomfortable about AAPL being unable to hang on to its all-time high. Might there be too much selling pressure at a share price level of around $150? Is momentum over?

But long-term investors are probably better off ignoring the noise. The Apple Maven believes that Apple stock is still well positioned ahead of earnings day, even near a peak – while understanding that the largest gains in AAPL tend to come only after a double-digit pullback in the stock price.

Twitter speaks

Apple stock finally reached an all-time high earlier in July, only to pull back quickly in a matter of days. Are you concerned that AAPL may have peaked and is ready to come back down?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)