Apple Inc. (AAPL) Rallies Before iPhone Debuts, But …

Apple stock - Apple Inc. (AAPL) Rallies Before iPhone Debuts, But …

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Professional consumer-technology critics may not be thrilled about what’s apt to be unveiled by Apple Inc. (NASDAQ:AAPL) on Wednesday. (Most likely the iPhone 7.) But Apple stock holders aren’t deterred. Despite several setbacks on the heels of disappointing results since mid-2015, AAPL is up 16% since its late-June low. And as of last week, shares have rekindled that uptrend headed into what’s sure to be a buzz-creating event.

Apple Stock Rallies in Front of iPhone Unveiling, But...

Source: Apple

Even if some observers are only interested to see if AAPL stock gets the rug pulled out from underneath it.

That outcome is certainly possible. Apple stock could be at high risk if the newest iteration of the iPhone isn’t anything more than what we already know.

It’s All About the iPhone 7

Just for the record, no one but Apple employees know the agenda for Wednesday’s invitation-only event to be held in San Francisco. But it would be shocking if the focus was on anything other than the ballyhooed iPhone 7. The Apple Watch 2 could also make an appearance, and a new Mac OS along with an updated iPad may also make an appearance.

But it’s really all about the iPhone, which still drives about two-thirds of the company’s revenue.

For better or worse, no one anticipates a ton of change in the iPhone 7, and even fewer changes consumers love. Among the biggest rumored updates are the removal of a headphone jack (forcing owners to use wireless headsets, or maybe even plug into the so-called lightning jack), a more durable “home” button and dual lens camera for taking even better pictures on the iPhone 7 Plus.

Other than that, the device shouldn’t look, feel or act too different from the iPhone 6.

This creates something of a glass half-full/glass half-empty conundrum for current and would-be owners of Apple stock. Will AAPL be able to sell consumers on the idea that an upgrade is necessary (in particular knowing that the next-generation iPhone is due in 2017)?

It’s going to be tough to do thanks to the now-gone headphone jack. In a recent poll, 64% of smarpthone owners said the lack of a traditional wired headphone option was a drawback.

Apple Stock Charts Tell a Story

The recent action from Apple stock says investors expect the market to be receptive to the iPhone 7. This same crowd has been fooled before, however, which becomes readily evident with a look back at the chart’s recent history.

AAPL shares, which still are down nearly 20% since 2015’s highs, have been tough to own in the shadow of a slowing upgrade cycle and lackluster results in China. The real story, however, are the big swings we’ve seen between then and now. The bulls have been quick to forgive and forget, assuming the company — and Apple stock — would return to its former greatness each “next time around.”

The most recent wave of bullishness since June’s lows is the most technically compelling one yet, with a strong move above the 200-day moving average line (green) and last week’s renewal of the uptrend after a lull two weeks ago.

But the strength is flawed. There’s very little volume behind it, and what little bullish volume we’ve seen has also been shrinking.

Apple stock chart AAPL

The buying isn’t so much a majority opinion, but rather sellers simply not getting in the way.

These buyers are waiting on/hoping for something compelling. They probably won’t get it on Wednesday, as most everything that’s relevant about the iPhone 7 or the next generation of the Apple Watch has already been leaked.

Apple AAPL stock

That’s not necessarily a call for bearishness, though. What these buyers are really waiting on are the sales figures — or at least plausible sales estimates — for the iPhone 7. Those are still a few weeks away.

In other words, there’s still no telling which direction AAPL stock is apt to go following Wednesday’s unveiling. That largely depends on how well Tim Cook sells the device as distinctly better than the iPhone 6. As we noted, not many people see much of a justification for an upgrade, even if access to the next iPhone after the iPhone 7 can be had by merely leasing the iPhone 7 via the company’s Upgrade Program.

Said in simpler terms, it’s all about the spin and the mood the market is in on Wednesday. It’s not going to be a certain slam dunk, as has often been the case in the past for Apple with such unveilings.

While Apple stock is up since June, the chart clearly says the market can and will dump AAPL in a hurry for the right reason.

The risk is still there.

Bottom Line for AAPL

To say Apple stock is more hype-driven than results-driven is nothing new. But it’s a fairly recent phenomenon to be able to say the company hasn’t fully lived up to expectations. AAPL has suffered as a result.

The onus is on Tim Cook and Apple to prove iPhones are still the proverbial gold standard in smartphones now. Traders aren’t inherently giving the company the benefit of the doubt. That puts the recent rally at more risk than most people may realize.

Wednesday’s event won’t change that.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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