Although Apple Inc. (AAPL) doesn’t report last quarter’s earnings until Tuesday, the chart says the bulls have already drawn a line in the sand, suggesting an encouraging Apple earnings report.
Of course, the bulls could change their minds, but that’s probably not going to happen in light of the technicals and the fact AAPL is a name traders love.
Pessimism surrounding the stock is also rather strong right now, setting up a nice, contrarian-driven rebound.
On the flip side, if Apple’s earnings results are seen in a “glass half empty” light and AAPL is allowed to move meaningfully below $94.90, then look out below — there’s not another floor in sight for miles.
Apple Earnings, by the Numbers
Just for the record, analysts expect the company to report quarterly earnings of $3.23 per share on $76.7 billion in revenue Tuesday after the close.
Both compare favorably to the per-share profit of $3.06 on sales of $74.6 billion posted in the same quarter — its fiscal Q1 — a year earlier.
For perspective, those numbers translate into very un-Apple-like growth rates of 5.5% and 2.8%, respectively. It’s a far cry from the strong double-digit growth AAPL shareholders have grown accustomed to, and one of the reasons Apple shares have fallen more than 27% since their July peak.
That, however, may be all they’re going to fall.
Line in the Sand
Whether they consciously know it or not, there’s a reason traders didn’t let AAPL sink any lower than $95 in the midst of the current selloff, even though the stock’s been dancing with that level every bit of the past three weeks.
The reason? The $95 area ($94.90, specifically) was “the” floor in August, and a fairly significant floor in the fall of 2014. For whatever reason, the market’s drawn a line in the sand there.
Realistically speaking, the floor is more likely to serve as a bullish springboard than it is break down.
This week’s hammer-shaped bar (from AAPL, as well as the broad market) implies the selling has run its course and we’ve transitioned back into a net-bullish environment. A close above this week’s high of $98.65 would be a confirming sign a rebound move was underway.
If such a move takes shape — and bear in mind the news from Apple’s earnings report may be the catalyst for that move — a rally back to the triple-top around $133 could be in the cards. Just prepare for contentious headwinds at $102.90 and the $117 area.
The former is where an important Fibonacci retracement line lies, and the latter is where the 200-day moving average line (green) will be by the time it’s tested. Both are proven technical hurdles.
If the floor at $94.90 does break down (most likely driven by market-wide weakness rather than something Apple-specific), a move to $73 becomes possible, with only the checkpoint downside target of $84.50 standing in the way.
The $73 mark is the next established floor on the chart’s history, while the $84.50 level is another important Fibonacci retracement line.
Again, with the market acting like Wednesday’s lows were also a trend low, such broad weakness is the low-odds possibility here.
Bottom Line for AAPL
While the shape of the AAPL chart is mostly favorable for the bulls heading into the Apple earnings announcement, there’s another, qualitative reason the undertow is favorable for Apple — pessimism.
It sounds counterintuitive because it is — that’s the nature of contrarian trading, which assumes investors (including the pros) are wrong. And the market is convinced Apple is going to disappoint this coming Tuesday.
Headlines like “Apple earnings optimism may be ‘detached from reality'” and “Apple investors stuck in the past if they expect big growth” aren’t just a matter of explaining to investors why they may want to be concerned, they’re thinly veiled insults of anyone who holds out hope.
When the name calling begins, there’s a good chance most, if not all, of the selling is in the past.
Between the extreme vocal pessimism and an oversold chart that’s already acting like it wants to move higher, the market looks like it’s prepping for the Apple earnings news with a glass-half-full mindset.
That bodes bullishly.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.