How Much Lower Can Apple Fall?

Apple shares have fallen as much as 17% since their September all-time high. Based on Apple’s humongous gains since 2003 the down side potential is quite large, but here’s one important support level to watch.

Did somebody upset the “Apple cart?” Apple’s earnings disappointed and the stock closed lower 6 out of 8 trading days. How much lower can Apple fall?

For readers of iSPYETF Apple’s 17% drop doesn’t come as a surprise. This September 18 article posted on iSPYETF (Technology Investing for Beginners – You Can’t Lose Money with Apple Math) warned that:

“Common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF and SPDR Technology ETF (XLK) will follow Apple’s direction.”

The September 12, Profit Radar Report (which identifies profit opportunities for subscribers) issued this trading recommendation: “Thus far Apple has been able to close above support at 660, but RSI is deteriorating. Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660. Obviously, there is no short Apple ETF and if you don’t have a margin account set up, you may consider using the ShortQQQ ProShares (PSQ), which aims to deliver the inverse performance of the Nasdaq-100 (Apple accounts for 20% of the Nasdaq-100).”

How Low Can Apple Go?

AAPL has rallied from $6 – $700 since 2003, so obviously there’s plenty of down side risk. The more appropriate question is: Where’s the next support for AAPL?

Below is an updated version of a chart that was first featured on this site on August 22 (Apple Bullies the Nasdaq and S&P 500 But May Soon Disappoint Investors).

We’re looking at a log scale chart of AAPL prices with two purple trend lines and a black parallel trend channel. The black trend channel contained prices since April 2010 and alerted us of the recent Apple top.

AAPL pulled away from trend channel resistance a few weeks ago and is now approaching the upper purple trend line. This trend line coincides with the 200-day SMA at 588 and will be important support. How AAPL reacts to this support may well set the stage for the Nasdaq and S&P 500.

The Profit Radar Report looks at all major markets (and some major players like Apple) to identify high probability, low-risk trading opportunities (or upset Apple carts).

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

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Technology Investing for Beginners – You can’t Lose Money with Apple Math

I got this piece of “Apple Hot News” in my inbox yesterday: “Apple today announced that pre-orders of its iPhone 5 topped two million in just 24 hours, more than double the previous record of one million held by iPhone 4S. Demand for iPhone 5 exceeds the initial supply, and while the majority of pre-orders will be delivered to customers on September 21, many are scheduled to be delivered in October.”

What’s the profit margin on 2 million iPhones? Apple doesn’t reveal profit margins, but Reuters got hold of a document filed in Apple’s patent battle against Samsung.

According to this document, Apple’s gross margin for U.S. iPhone sales between April 2010 and March 2012 ranged from 49 – 58%. The iPhone 5 sells for $199 – $399 (depending on built in storage).

Let’s calculate a 58% profit margin on 2 million iPhones sold for $299. The result is $347 million. Since last Thursday’s unveiling of the new iPhone 5, Apple (AAPL) shares have risen 3.5%. This means that Apple’s market cap increased by some $24 billion.

A $24 billion increase based on the news of 2 million pre-orders worth about $347 in gross profit doesn’t make sense.

In fact, common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF (QQQ) and SPDR Technology ETF (XLK) will follow Apple’s direction.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.