2012-07-26

With the recent corporate earnings release from Apple Inc. (NASDAQ/AAPL), many investors are unsure how best to trade the stock. Before we get to that, let’s take a closer look at the corporate earnings the firm posted. The common thread in the disappointing corporate earnings release from Apple is that it appears customers are postponing purchases, awaiting new products to be released in the fall. Frankly, this is to be expected; I’ve talked to plenty of people who are holding off buying an “iPhone” until the new one comes out.

Another reason for the disappointment in Apple’s corporate earnings was a weakening of the global economy, including China. While China negatively impacted corporate earnings this quarter, international growth will be a key driver for the next several years. Only a small number of Apple stores are outside of developed nations like America. This then provides a huge opportunity over the next decade to continue expanding in the retail space. However, the economic turbulence engulfing the world will have a significant impact on the company’s corporate earnings and margins over the short term.



Stock chart courtesy of www.StockCharts.com

While that’s a brief glance at Apple’s corporate earnings, from a technical analysis point of view, the stock is in a dangerous area. While, following the corporate earnings release, many fund managers have stated that they are interested in buying shares, the proof is in the pudding, as the saying goes. Technical analysis will help us understand if money is actually being funneled into the stock. A break of the upward sloping line is a significant move, as it appears the stock will open at approximately $572.00. This means the trend that developed in the stock price from May until the day before corporate earnings release is now broken.

Breaks of any trends are important in technical analysis and should have attention paid to them in addition to the fundamental analysis. Even a stock as great as Apple will have downward moves. Technical analysis can identify better opportunities to reenter the stock. Note the pullback in the autumn, which culminated in early December in a move above the mini downtrend. As well, the stock in April significantly sold off. Investors who bought too early were only recently rewarded.

A better strategy would be to wait for the stock to consolidate and watch the technical analysis of the charts to determine an optimal area to begin accumulating. Following the April selloff, the stock broke through the mini downtrend in late May, at which point it subsequently had a nice move upwards. I would watch the technical analysis of Apple stock and wait for a basing formation followed by break up through resistance as a signal that the next likely move would be higher.

Until then, the next product launch is not until the fall and earnings probably won’t reflect it until early in 2013. This is a long time to wait and many things could occur in the global economy that would put a damper on the stock market overall.

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