Well AAPL has taken the breakdown push on this symmetrical triangle. Despite that this makes very little sense considering the high guidance that was issued and that they beat on the high range, we have to simply deal deck with what the market vote is at the moment. This is all very part of the shenanigans that are played and largely why we hedge and are positioned the way we are in AAPL. The March 100/110 Call spread is still bullet proof from a conservative model at making sure we're well positioned to come out ahead with a 100% yield on this trade so long as AAPL stays above $110 by March. Notice that spread is still up over 50% trading @ $7.50 & change after this drop in AAPL. What's more, we're getting closer to the bigger goal that was defined in the stock replacement strategy. Here's where things stand with AAPL at the moment on the daily view:
And here is AAPL now on the Hourly view. Apple has pushed down to oversold territory on the hourly and bounced off the $113 lows.
They're selling the stock off as if it missed earnings and gave poor guidance. Apple not only beat expectations, but they offered guidance that was nearly $3 billion above Wall Street expectations on the top line. Apple gave a report where it beat on essentially every measure. There really isn't much of an excuse or rationalization for this sell-off. The one view that stands to reason is the notion that the quarter was given the extra week in Q1 this year; Apple would have to report revenue in excess of $81.7 B to clearly demonstrate growth. Being supply constrained is the most obvious limiting factor, and likely bodes well for Q2. But for those wanting absolute confirmation of growth….one could interpret that they didn’t get it yet.
We do now have a massive earnings gap and like the last one, we should see a closing of that gap sometime during the quarter.
To be clear, we are no expecting this to be a crash back anywhere near sub 100. In reality, we believe this pullback will be short lived, but that ultimately AAPL will be stuck in a new trading range for the remainder of this next quarter. It's what stocks due that are in recovery: they purge, they pullback, they experience the bends and make it look like they're raining hell, when in reality they are on their path creating higher lows and higher highs. So AAPL retesting it's former $134 highs this quarter is off the table, but what we'll be looking for is a continuation of a recovering trend and that AAPL continues to form a higher low. We want to be taking advantage of an options / call spread model when we reach near the exhaustive end of this next consolidation range. To give you an idea of the levels AAPL is most likely to trade at, view below:
On a technical basis, here's where things stand now. Apple has fallen to a sub-30 RSI on the hourly obviously and firmly bounced. On the daily chart, Apple is down to near the 50-day moving average and just at a 50-RSI. It's nowhere near a 30-RSI that one would normally see as we neared an oversold bottom. One concern we want to watch for is given how long Apple consolidated near the $118 level, it looks like Apple could form a head and shoulders top. The neck-line would be somewhere around the $112.50 level with the shoulder sitting near $116. So if this sell-off where to continue down to $112.50 and then Apple rebounds up to $116 and then falls again to $112.50, that would be a clear head & shoulders top. So we will be watching for that.
On the flip side of that, remember Apple is trading where it was trading just 13-sessions ago. And that was when Apple was rallying. Just 14-16 sessions ago, Apple as trading well below this level. It was struggling to push above $114 and was hanging between $112 and $113. So the results aren't damning in the sense that Apple is so far away from its highs now. It could easily recover a $4.00 loss in days. The question is what will turn around this sentiment when Apple has in fact delivered on its earnings. It's report exceeded Wall Street expectations AND it's guidance suggested a return to sales growth. Sales growth is by far the most important measure. It's guidance suggests a return to growth. What's more, they just said on the conference call that fiscal Q1 is supply based. They're selling every iPhone they can make. They admitted that demand is so great for the device that essentially they could have sold 100+ million iPhones in Q1 if they wanted to. So that demand is going to spill over into Q2 which should be a massive growth quarter YOY over fiscal Q2 2016. That's a return to growth. Not sure how long it will take WS to figure this out.
Finally, it's important to remember that we've seen even bigger overreactions than this that resulted in a bottom within a few days and a massive rally to new highs within a few weeks. Think back to January 2015. The stock took a beating on earnings falling from something like $520-$530 down to $495 and then rallied to $550 within a couple of weeks. So we could be seeing a repeat of that here.