Apple reported blowout earnings after the stock market closed Tuesday.
Earnings were better than the consensus and the whisper numbers. Still, those numbers are in the rearview mirror. Let’s look ahead: The prospects for iPhone 12, a 5G-based phone, just got better.
However, Apple investors and those who want to buy the stock ought to be aware of a nuanced situation that may develop and increase risks. Let’s explore with the help of two charts.
Please click here for an annotated daily chart of Apple AAPL stock.
Please click here for a chart of Apple stock compared with the Dow Jones Industrial DJIA, S&P 500 ETF SPY and Internet ETF FDN. For the sake of transparency, this chart was previously published before the earnings report. At that time, The Arora Report had raised Apple’s target to $320, higher than most analysts’ target.
Note the following:
• From the second chart, Apple stock has significantly outperformed the Dow Jones Industrial Average. Apple stock has also outperformed other popular large-cap stocks such as Amazon AMZN, Facebook FB, Google parent company Alphabet GOOG GOOGL and Microsoft MSFT
• The first chart shows four trend lines. Each trend line shows higher price acceleration. Such price acceleration is not sustainable and poses a fairly high risk at this time.
• The chart shows when Apple fell into the Arora buy zone with a low band of $147.31. The Arora Report portfolio has held Apple stock from $18.73. I talked about a $1,000 target for Apple stock (pre-split of 7 to 1); such a high target was unheard of elsewhere at that time.
• Subsequently we have provided several new buy zones that enabled investors to buy Apple stock at favorable prices and also profit from additional trade-around positions. For example, take a look on the left-hand side of the first chart; Apple stock fell from $233 to the Arora buy zone with a low band of $147.31.
• The first chart shows the new Arora buy zone.
• The first chart shows the new Arora very long-term target zone for Apple.
• Volume usually provides important clues, but in the case of Apple, there is not much useful information.
• Since Apple stock is overbought, it is important to look at the relative strength index (RSI). However, as shown on the first chart, RSI on the daily chart provides no useful clues. This is common in a stock that is as strong as Apple and where price has been accelerating.
• Over five years ago when everybody was focused on Apple’s hardware and Apple got a low price-to-earnings (P/E) multiple, I was writing that eventually Apple would get into services in a big way and that would substantially increase the P/E multiple. This is exactly what has happened. Apple’s P/E multiple has gone from about 10 to 24.
• Apple’s service revenues hit a record of $12.72 billion, growth of 17% year-over-year. However, there is a cause for concern. Service revenues came below expectations of $13 billion….Read more at MarketWatch.
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