Historically, the fiscal third quarter is the weakest for Apple Inc. (NASDAQ:AAPL). With earnings just a few weeks away though, many investors still seem optimistic. AAPL stock is up almost 32% on the year and nearly 7% in the past month alone.
So what should we make of this situation heading into the company’s fiscal Q3 earnings report next week?
Even though Apple is heading into its typically weakest report of the year, investors are remaining bullish. It has nothing to do with the financial results we’re about to see, but simply the upcoming iPhone 8 release. Consumers and investors alike are anticipating a “supercycle” built upon a super device with a super price tag. The hope is that record unit volumes drive record sales and earnings over the 12 to 18 months after launch.
Recent earnings results from Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) were accompanied with weak guidance for next quarter, however. This signals issues with iPhone 8 production. Recent reports have said there’s panic at Apple, too as the company struggles to get key features to work in time for production.
So far, these reports have been met with a shrug from investors. AAPL stock climbs unabated.
For now, though, I actually am bullish on AAPL stock. I’d just like to see a healthy pullback that shows Wall Street is grounded in reality before making my move.
Apple won’t suffer the same fate as BlackBerry Ltd. (NASDAQ:BBRY). There’s no better smartphone coming, and while the company hasn’t exactly been innovative with its flagship devices, its iterations have enough to keep fans coming back for more.
Apple’s user interfaces are the best, even if the products’ specs aren’t as good as some competitors. Heck, AAPL is even working on putting lasers into its phone for improving its augmented reality capabilities. The business model has fat margins, allowing plenty of its massive revenue to trickle down to the bottom line. Along with its huge buyback programs (now forecast to hit $300 billion by March 2019) it has big-time investors like Warren Buffett jumping in, too.
The addition of the HomePod is questionable in terms of revenue generation, but that’s a play toward building the Apple ecosystem. We’ll see over time whether it can compete with Amazon.com, Inc.’s (NASDAQ:AMZN) Alexa, but Apple needed to enter the smart home to give the App Store, iTunes, Apple Music and other high-margin “services” another shot on goal.
I reiterate: Apple is a great company. Shares have simply gotten ahead of themselves considering the uncertain next few months for the iPhone 8.
What to Do With AAPL Stock
The most constructive thing we could see here — and the thing would-be-buyers should be rooting for — is an Apple decline on (or ahead of) earnings.
Last month, we were rooting for a double-digit drop to $125. This level was significant for a number of reasons. Support from the 200-day moving average was in play, and $125 was a previous breakout level for AAPL stock. A retest and hold of that level would have been an ultimately bullish development.
Now though, the 200-day moving average is closer to $132. Additionally, AAPL stock found support at the $142 level.
The $142 level is the launch pad that sent AAPL stock through its 50-day moving average and up toward current prices around $153. This sets up the possibility that Apple will retest its highs near $157 ahead of earnings.
I would be leery if that happens.
Sales are likely to be weak this quarter as consumers hold off and see what the iPhone 8 will bring. The charts aren’t showing that concern, and it’s hard to understand why. In fact, momentum has swung positive as the MACD took a bullish turn.
Technically speaking, support is holding, the trend is up and momentum is bullish. It seems a fool’s errand to bet against AAPL stock. I don’t suggest you do that.
I do suggest you keep your eyes peeled for a pullback, and if Apple falls back to support, dive in.