… File that under “things you’ll never read.”
Apple (AAPL) shares were getting hit in the pre-market as the company learns of new antitrust penalties from the E.U. At the same time, the headline flashes across my screen that…
“Apple unveils the new 13- and 15-inch MacBook Air with the powerful M3 chip (179.66)”
Now, at the risk of being obtuse, does anyone really care about the newest laptop? Is there going to be a line at the Apple Store when these get released?
The Mac line generated 6.51% of Apple’s revenue according to last quarter’s earnings release. Only the iPad threw less money to the top line for the company.
Within the last week, we’ve heard about the company dropping their electric car project. I remember watching on CNBC when they rolled the first one through the campus years ago and thinking “no way.”
Let’s get to matters.
Apple is in trouble for a few reasons.
First, the stock is struggling through an “Iteration Phase.” This is when a company that is known for and built on innovation loses its magic.
For those of us that remember, Microsoft (MSFT) went through an Iteration Phase in the early 2000s when all the company could do is churn out a new version of Windows with some bonus package of fresh emojis.
Ironically, this was the same time that Apple was innovating their butts off, and as a result, Apple ate Microsoft’s lunch for a five-year period.
Remember the Microsoft phone!? Ugh.
To add to things, Apple now has a stock price problem.
Don’t get me wrong, with shares trading 9% lower for the year, they’ve already had a problem, and now it’s just getting worse.
This morning’s drop takes the price below that $180 that we talked about last week, and now shares will target $165 in fairly short order.
What’s so important about $165? That’s the price where Apple’s 20-month moving average sits and should provide some support.
The 20-month moving average is the big one for long-term investors. It’s the one you don’t want to see break of you own the stock.
Why?
The 20-month trendline of any stock of index acts as the line of demarcation between a long-term bull and bear market. It’s that simple. A stock or index is considered in a bear market if it goes below this trendline.
Here’s the chart.
There are larger implications in Apple’s case.
The market smells weakness. It senses that Apple is wounded and that perhaps this is going to take them years to correct.
Apple is one of the most widely held stocks in the market, which means that there are a lot of long-term investors that could potentially start to sell those shares, making the recent pullback look like a walk in the park.
Bottom Line
Apple isn’t going anywhere. The company is going to emerge from this Iteration Cycle, its just a matter of whether investors will be patient enough to wait for the company to start showing “green shoots.”
For my money, and a growing number of analysts, the approach is to be underweight the stock and wait for a sign that the company is set to begin its rebirth, not headlines about MacBooks - and please no more glasses.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.