Like many other tech oriented companies, Apple (NASDAQ:AAPL) has been trending lower since the beginning of October. At this point, AAPL stock is facing its eighth straight week of losses, and that’s the longest losing streak for the stock since a similar drop from September to November of 2012.
During the selloff back in 2012, Apple stock dropped from a high of $89.34 to a low of $49.30 before bouncing back. That is a drop of 44.8% and it took place from September ’12 to April ’13.
In 2012, AAPL stock tried to find support at its 52-week moving average, and it did manage a small bounce over a couple of weeks after reaching that moving average. This occurred during eighth week of losses. AAPL stock fell below the 52-week before the stock rose for two weeks.
If we look at the chart today, this week is the eighth straight week of losses, unless the stock makes a major comeback later in the abbreviated trading week. AAPL stock is slightly below the 52-week moving average at this time.
If we connect the lows from earlier this year, in February and April, we get a trendline that connects to the current price. We also see that the current overbought/oversold indicators are at their lowest levels since May 2016.
From that May 2016, low AAPL stock rallied and moved back above its 52-week moving average and remained above the trendline for the last quarter of 2016 and all of 2017. AAPL finally dipped below the trendline briefly in February.
Apple’s Stock Decline Accelerated After Disappointing Forecast
Apple stock peaked at $232.66 on October 3. AAPL stock falling from there and then when the company reported earnings on November 1, the selling accelerated. The EPS and revenue results beat the estimates, but it was the forecast that disappointed investors. The company’s forecast for fiscal first-quarter 2019 revenue was between $89 billion and $93 billion, but that was below analysts’ expectations.
The big decline in Apple stock back in 2012 happened in a similar fashion to the one we are seeing now. AAPL peaked about a month before an earnings report, and then on October 25, the company issued a disappointing report. The selling accelerated from there. Apple issued another disappointing earnings report in January ’13 and that sent the stock below its 104-week (two years) moving average.
Because of the sharp decline in the stock, the current P/E ratio has dropped to under 16 and the forward P/E is under 14 at this point. The company still sports a return on equity of 49.4%. Apple has a profit margin of 27.4% and an operating margin of 26.7%.
Looking at where Apple ranks in the telecom consumer products group, it still is the top rated stock according to Investor’s Business Daily. The overall ranking comes from a combination of technical and fundamental factors. The Relative Strength rating measures how a stock’s price has performed against all other stocks. Apple gets a 78 rating in this category and that means it has outperformed 78% of stocks over the past year.
For the fundamental ratings, IBD uses the EPS rating and the SMR rating. The EPS rating compares the most recent quarter’s earnings growth and it looks at earnings growth over the last three years. Once again, the results are compared to all other publicly traded stocks. Apple gets a 90 on its EPS rating.
The SMR rating measures sales growth, profit margin and return on equity. This rating can range from an A to an E. Apple gets an A in this category and that puts it in the top 20% of stocks.
In case you are wondering, the EPS rating and the SMR rating were really good back in 2012 as well.
In the Case of AAPL Stock, The Trend Is Not Your Friend
As good as Apple stock’s fundamentals are the price momentum is to the downside. We may see the price bounce for a week or two from where it is now, but I wouldn’t be too anxious to jump in and buy it just yet. If the pattern plays out like it did back in 2012, it will be a short-term bounce followed by more selling.
If the pattern continues to mirror the pattern from 2012-2013, Apple will issue another disappointing earnings report on January 30. But that might be carrying the comparison a little too far.
When the selloff took place in 2012, the bounce after the losing streak was halted by the 13-week moving average. When we saw the oscillators down in oversold territory in 2016, the first bounce was also halted by the 13-week moving average. It wasn’t until the stock moved back above the 13-week that Apple’s stock was able to maintain any upward momentum.
Given this information, I would suggest watching Apple closely over the coming few weeks. If it hits the 13-week and then turns lower again, step back and wait. If the stock moves back above the 13-week, that would indicate that the momentum has perhaps shifted back to the upside. Of course, the earnings report at the end of January will also be looming so you will want to be flexible.
As of this writing, Rick Pendergraft owned no positions in the aforementioned securities.