Shareholders in Apple (NASDAQ:AAPL) have had a strong 2020. AAPL stock is up over 67% year-to-date (YTD). However since hitting an all-time high of $137.98, the shares have come under pressure and fell to $103.10 on Sept. 21. They are currently shy of $123.
Institutional ownership of Apple stock is close to 60%. Keeping a close eye on the changes in such large positions can be a useful indicator to gauge the short-term sentiment. Furthermore, AAPL stock is also actively traded by algorithmic (algo) traders.
Recent academic work has analyzed rules-based decision-making on Apple shares. For instance, Vincent Tanoe’s work at the Department of Computer Science and Engineering, University of the District of Columbia, suggests, “In recent years, there has been an exponential increase in the use of artificial intelligence technique for trading in financial markets especially in stocks. … Apple is one [of] the best compan[ies] in tech-industries. Year-over-year growth in gross profit, [A]pple has been excellent leading indicator for over the past five years. Investors are also attracted by the heath of the company which is also impressive.” Tanoe concludes that machine learning can be useful in making trading decision in Apple shares.
Therefore, the short-term price level in Apple stock is usually a combination of the long-term investment decisions by institutional holders and the short-term (usually daily) actions of algo traders.
The 52-week range for the shares has been $53.15 to $137.98. In the coming weeks, I expect AAPL stock to be largely range-bound between $115 and $125. Long-term investors may regard dips as buying opportunities, before shares hit new all-time highs in the coming quarters. Here’s why.
Over the past decade, Apple has become one of the undisputed technology leaders in the smartphone and consumer electronics industry. For example, in October, the company released various models of the iPhone 12 with 5G connectivity. Consumers and investors alike had been eagerly waiting for the new phones.
As the first U.S. company to reach a market capitalization of $2 trillion, Apple is the darling of Wall Street. It is a coveted member of the NASDAQ-100 index, the Dow Jones Industrial Average and the S&P 500 index.
In late October, the company announced robust Q4 results as the “company revenue sets September quarter record [and] Services and Mac revenue reach new all-time high.” Revenue of $64.7 billion translated into earnings per diluted share of 73 cents. Sales form overseas markets accounted for 59% of the quarterly revenue.
However, the ever-important iPhone revenue, which came at $26.44 billion, was below estimates. It was also down 20.7% year-over-year (YoY).
Management did not offer guidance for the quarter ending in December, meaning investors do not get a clear idea of how the sales of the iPhone 12 could be. Since the release of Q4 results, AAPL stock has failed to make a sustained move up.
Apple shares are widely followed by institutions, retail investors and day-traders. Although it has become a darling among investors, making new highs requires solid fundamental metrics. In Apple’s case, strong sales numbers from iPhones are the crucial driver. However, Q4 metrics have failed to provide the assurance that phone sales will continue to be strong in the coming months.
Bottom Line on AAPL Stock
The current positive vaccine news has also meant a rotation into value stocks that have been recently ignored. Therefore, many tech names, including Apple stock, have failed to go up in price.
Considering how far the broader markets have increased since the lows seen in March, some short-term profit-taking in many tech names is likely. Therefore, in the coming weeks, AAPL stock is likely to trade in a range, possibly between $110 and $120.
Those investors with a view to enter Apple may consider any decline toward $110, or even below, as a good opportunity to buy the shares.
If you are already a shareholder, you may want to hedge your long position with a covered call that expires on Jan. 15. It would offer a degree of downside protection while allowing you to participate in a potential up move.
Those investors who are ready to commit capital to AAPL stock fully may instead consider buying an exchange-traded fund (ETF) that has the company as a holding. Examples include Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the Invesco QQQ Trust (NASDAQ:QQQ), the iShares Global 100 ETF (NYSE:IOO), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) or the Vanguard Information Technology Index Fund ETF Shares (NYSEARCA:VGT).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.