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Chart Of The Day: Why Apple Earnings Could Beat Expectations Yet Cause Sell Off

By Investing.com (Pinchas Cohen/Investing.com)Stock MarketsJan 24, 2022 09:32AM ET
www.investing.com/analysis/chart-of-the-day-why-apple-earnings-could-beat-expectations-yet-cause-sell-off-200615694
Chart Of The Day: Why Apple Earnings Could Beat Expectations Yet Cause Sell Off
By Investing.com (Pinchas Cohen/Investing.com)   |  Jan 24, 2022 09:32AM ET
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Tech behemoth Apple (NASDAQ:AAPL) is scheduled to report Q1 2022 earnings on Thursday, Jan. 27 after the US market close. Expectations are for EPS of $1.89, up from $1.68 for the same quarter a year ago. Revenue is seen to be $118.68 billion, a jump from the $111.44 billion posted during last year's corresponding quarter.

The Cupertino, California-based company beat on both numbers last year; analysts predict that the iPhone maker will beat consensus expectations again this quarter.

Still, even if it beats, Apple's stock could sell off anyway. Investors are jettisoning technology shares, which represent growth stocks and currently possess the highest, most frothy valuations. What's happening across the broader equity market right now is bigger than Apple—the world's largest company based on its market cap of $2.652 trillion. 

Traders are now pricing in a 25-basis point Fed rate hike in March, which would make money more expensive, increasing the difficulty of justifying overstretched tech valuations. As investors rotate into cheaper cyclicals and out of tech, being the biggest mega cap tech company could turn into a liability.

Indeed, last week, the NASDAQ lost 7.6%, lagging peer US major indices, which all suffered their worst weekly performance in months. 

On the other hand, Apple's earnings report takes place after the conclusion on Wednesday of this month's Federal Reserve meeting. Should upcoming Fedspeak be more dovish than expected, investors are likely to reverse back into technology stocks and Apple in particular.

With fundamental triggers still fluid, could technicals be providing additional clues to where the supply-demand dynamic currently stands?

AAPL Daily
AAPL Daily

Apple completed a small top, supported by the 50 DMA. What's tricky about this top is that it developed above the price's uptrend line since the notorious March 2020 bottom, guarded by the 100 DMA.

This means the stock could bounce off that uptrend line and resume moving along the ongoing uptrend. However, if the top's implied target is fulfilled, the price will then penetrate the uptrend line as it heads lower.

While both the daily RSI and MACD have triggered sell signals, they might be nearing oversold conditions after the stock fell into correction territory, having lost more than 10% of value since its Jan. 3 record close.

Trading Strategies

Conservative traders should wait for a new high before taking a long position; alternatively wait for the price to fall below the uptrend line, then a retest of it from below before selling.

Moderate traders would sell if the price retests the top's neckline or buy when it reaches the uptrend line.

Aggressive traders could short at will, according to a coherent trade plan. Here is an example:

Trade Sample

  • Entry: $164
  • Stop-Loss: $165
  • Risk: $1
  • Target: $160
  • Reward: $4
  • Risk-Reward Ratio: 1:4

Author's Note: We're not in the fortune-telling business. A technical forecast is an expectation based on analysis derived from historical data. We do not know what will happen with this particular trade. Rather, what we're saying is that if traders behave as they have previously in this situation, the outcome is more likely to follow through in a certain way, as described above, based on our interpretation. To increase the odds for improved returns overall, you need to learn how to write a plan that meets your timing, budget, and temperament, rather than work on a trade-by-trade basis. Until you learn how to do that, you may use our samples to practice, but don't necessarily expect profits. That occurs when you gain enough experience to develop your own trading style.

Chart Of The Day: Why Apple Earnings Could Beat Expectations Yet Cause Sell Off
 

Wondering Whether Apple is a Buy Right Now?

Based on Apple's latest earnings report and current market price we identify 4 key data points regarding Apple's stock:

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Chart Of The Day: Why Apple Earnings Could Beat Expectations Yet Cause Sell Off

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Comments (6)
Andy Kiss
Andy Kiss Jan 25, 2022 5:08AM ET
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Tight take. Thanks for insights.
Pinchas Cohen
Pinchas Cohen Jan 25, 2022 5:08AM ET
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Thanks, andy
Joni Limnell
Joni Limnell Jan 25, 2022 4:27AM ET
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Thank you for The article it was good👍👍
Pinchas Cohen
Pinchas Cohen Jan 25, 2022 4:27AM ET
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You're welcome, Joni
Mohd Izhar Muslim
Mohd Izhar Muslim Jan 25, 2022 4:21AM ET
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Thank you for the article 👍
Pinchas Cohen
Pinchas Cohen Jan 25, 2022 4:21AM ET
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You're welcome, Mohd
Peter ONeill
Peter ONeill Jan 24, 2022 12:18PM ET
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Apple is a solid long-term investment but it is still overvalued/ overinflated by Fed QE. Its PE Ratio is currently at 29 versus an average of 18 for the whole decade prior to covid (Implying a 40% overvaluation). Overall YoY revenue growth projections are for 10% growth in 2022 versus 2021 levels.  Plus with supple bottlenecks and inflation - very hard to see it grow earnings by the 40% it would need to justify its current PE Ratio. I personally won't be buying unless dips to $90-$100 a share. But if drops to anywhere this price, it will drag most of the Nasdaq down with it given its index weighting.
Ron Love
Ron Love Jan 24, 2022 11:44AM ET
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Not sure why you mentioned Fed raising rate 0.25% is bad for tech in an Apple article. When was the last time Apple needed to secure a loan to fuel future growth? 🤔
katya litski
katya litski Jan 24, 2022 11:44AM ET
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rates affect stocks. duh
Pinchas Cohen
Pinchas Cohen Jan 24, 2022 11:44AM ET
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First, read this https://www.investopedia.com/articles/investing/081716/understanding-apples-capital-structure-aapl.asp. Second, Apple is not traded in a vacuum. if its sector goes down, so will Apple. Even more so, when the averages selloff. Finally, the price is determined by the supply and demand of investors, who use debt to support high valuations.
William Bailey
William Bailey Jan 24, 2022 10:50AM ET
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Cause free money from the Fed is over cause of bank crushing debt?
 
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