Just a few months ago, everyone was gaga over Apple (AAPL).
The Apple Watch was coming. Apple stock was added to the Dow Jones Industrial Average. Analysts were calling for a $1 trillion-plus valuation on AAPL as the hype train appeared unstoppable. Cantor Fitzgerald said Apple’s wearable would be the company’s best-selling new product ever. Its Project Titan car project seemed tangible.
But all of a sudden, like the air coming out of a helium balloon, the stock price deflated. On Thursday, Apple stock fell to within a hair of its 200-day moving average — AAPL’s deepest pullback since early 2014.
That was great news for the July $125 AAPL put options I recommended to Edge Pro subscribers on June 12 (that are now carrying a gain of 213%), but don’t fret. There’s plenty more action for bearish traders.
Because for several reasons, the pullback in Apple stock is about to deepen:
Click to Enlarge On a purely technical basis, Thursday’s pullback pushed the Apple stock price down and out of a trading range going back to February, setting up a test of support at the 200-day moving average — a level that has held AAPL aloft since 2013.
A downward cross would be the first since late 2012 for a stock that was, at its peak, a hedge fund roach hotel. Selling will beget selling as these short-term traders flee.
There is just no other way to say this: The much-heralded Apple Watch has been a dud. Reviews lamented the short battery life, slow app loading times, and finicky screen-on wrist-flick sensor.
Wall Street analysts are slashing their sales estimates: Pacific Crest securities cut their 2016 Apple Watch sales estimate from 24 million to 21 million, and lo and behold, an independent report says Apple Watch sales have practically ground to a halt.
As the first major product unveiling under CEO Tim Cook, it has been an embarrassment.
Clearly, the company’s product innovation cycle has slowed since the passing of Steve Jobs. The company’s new streaming music foray — like the introduction of the iPad Mini — was something the late co-founder was on the record as being against. Not only does Apple Music risk cannibalizing iTunes music purchases, but it’s not clearly differentiated from competitors.
It’s hard to escape the feeling this was merely catchup and/or an underwhelming application of the $3 billion acquisition of Beats.
Apple’s bread-and-butter product is its iPhone lineup, led by the admittedly well-received iPhone 6 refresh that finally increased the form factor size.
The problem going forward is that the iPhone 6S, which is ramping up production, will have a hard time repeating this success with incremental improvements at a time when smartphone market share penetration has fully matured and is at risk of oversaturation. Sales of the current iPhone 6 are already reportedly slowing.
AAPL is set to report results on July 21, with earnings of $1.78 per share expected on revenue of $49 billion. Deutsche Bank analysts are looking for iPhone sales to slow, market share to moderate, and iPhone growth to underperform the overall smartphone market next year. The success (or lack thereof) will in their opinion be the focus this quarter. Given recent data points, they are trimming their long-term estimates for the wearable. Apple Music will not impact quarterly results yet, in their view.
Prices at current levels and near historical price-to-earnings ratios reflects what they believe will be slower growth potential heading into fiscal 2016.
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