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It’s Time to Fade the Apple Inc. (AAPL) Stock Earnings Rally

Bet on a pullback with AAPL stock looking top-heavy following last week's earnings

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Last week, Apple Inc. (NASDAQ:AAPL) delivered on that earnings win it needed so badly. The company beat Wall Street’s expectations, and it even hinted at a September release for the much anticipated 10th anniversary iPhone 8 in its fourth-quarter guidance.

Everything would seem to be running smoothly for AAPL stock investors, but there are reasons for concern. For instance, the bulk of Apple’s earnings growth is now coming from iPad enterprise partnerships and its services division.

While expansion outside of the iPhone is a good thing for Apple, these units won’t return the same kind of sales and revenue numbers that AAPL stock investors are used to seeing in the iPhone heydays.

As for the iPhone itself, unit sales continue to decline. Specifically, third-quarter iPhone sales came in at 41.3 million, essentially flat year-over-year and down from 50.8 million in the second quarter. Apple also has a problem with iPhone sales in China, as recent data suggests the company is poised to drop out of the country’s top 5 vendors list.

With the iPod now all but dead, and the iPhone’s dominance waning, Apple is no longer a sure thing.

AAPL stock
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Turning to AAPL stock’s immediate outlook, the stock is currently battling resistance in the $160 region, and area that kept shares in check back in May.

What’s more, the pool of potential sideline money for AAPL stock continues to dwindle, as the shares are overextended above their 20-day and 50-day moving averages and trading in overbought territory.

Sentiment, meanwhile, remains unconcerned about the risks Apple is facing. Thomson/First Call reports that 33 of the 45 analysts following AAPL stock rate the shares a “buy” or better, with a consensus 12-month price target of $167.98 — up from $159.13 ahead of earnings.

In the options pits, we find more bullish sentiment for AAPL stock. Currently, September put/call open interest ratio currently rests at a bullish reading of 0.48, with calls more than doubling puts among back-month options — a sharp reversal of the pre-earnings a bearish reading of 1.33.

Overall, September implieds are pricing in a potential move of about 5% for AAPL stock heading into expiration. This places the upper bound at about $168, while the lower bound lies at about $151.

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Article printed from InvestorPlace Media,

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