I’ve got the benefit of sitting in front of a computer all day watching headlines and price charts.
To some degree, you learn to filter out the noise and focus on the trends, that’s what makes for a successful investors.
But sometimes it becomes very important to quiet down the noise and listen to the subtle “whispers” from Wall Street.
It usually happens when the analysts are starting to cover their butts. Drop a few quiet lines so that later they can say “We told you, you weren’t listening”.
That’s what’s happened over the last week. It’s got some implications if you’re an investors in Apple (AAPL).
Ignore it at your own risk or take a few minutes to hear what’s being said below.
It’s what makes for a successful investor…
We’re in the quiet period for Apple ahead of its earnings announcement set to hit the wires Thursday, October 31.
What that means is that you’re not going to hear anyone from Apple talk about earnings-related topics. The time for “warning” investors that earnings may fall short of estimates is over.
But the analysts don’t have a “quiet period”.
They can opine on the stock all the way up to the earnings release, and they normally do.
Usually, this is the time when the analysts are out there talking about their confidence in the stock, their outlook and target prices.
Mum has been the word on that. Instead, we’re hearing analysts start to get concerned.
Not good!
This morning is the loudest of the “whispers”.
Analysts from KeyBanc Capital Markets downgraded Apple shares to a “sell”. Less than a week away and they drop the stock’s rating.
The KeyBanc analysts also dropped their price target to $200. The stock currently trades at $233, so they’re looking for a 15% decline.
We’ll talk about the importance of that $200 level in a minute.
Two weeks ago, analysts from Jeffries dropped the stock from a “Buy” to a “Hold”.
The firm also dropped their price target to $205-$212.92.
Editor’s note: I love the “.92” on that price target!
In years of watching Apple I can’t remember a time when two large firm analysts dropped their ratings on the stock within a week or two of earnings.
But there’s more.
The Analyst’s “Whispers”
And then there are the “lift” headlines from Apple…
Average investors don’t see the “noise” in the headlines right now, they don’t hear the “whispers”.
But all the “chatter” means that something big is coming next Thursday, and Apple’s stock is in no shape to take an October Surprise of its own.
Currently, 68% of the 47 analysts with a recommendation on Apple stock have it ranked a “buy”. This is down from 76% about six months ago and represents a “falling out” between Apple and the analyst community.
The analyst chatter ahead of the report, along with the recent downgrades, suggests that Apple’s failure to post some very strong results – more importantly a strong outlook – would cause another round of downgrades.
Those downgrades would be the straw that breaks the stock’s back over the short-term.
Note the lack of trend in Apple’s chart.
Since July 1, Apple’s price has traded between $220 and $238 66 days. That’s 80% of the days.
The stock has gone nowhere because the market has become more nervous about the company's ability to bounce back.
New product announcements ahead of next week’s earnings are meant to provide a little more “hope” that the company’s outlook will improve, but this rarely pays off in the current quarter.
The bottom line here is that Investors need to brace for a break.
As a result of the long-term trading range, Apple is in position to break below three “lines in the sand”.
First, the stock’s 20-day moving average. This is the trendline that short-term traders monitor. A move below that will increase selling from “traders”.
Second, the 50-day moving average. I talk about this all the time as being the “trend is your friend” indicator. A move below this trendline will trigger algorithm selling and catch the attention of institutional traders.
Finally, the $220 price. This has been the bottom of Apple’s trading range since July. A move below that would increase selling as investors will feel like the one price that has held things in line for the last three months has given way.
Remember when I said that “We’ll talk about the importance of that $200 level in a minute.” Above? Here it is.
The $200 price level will serve as an opportunity to “buy the dip”.
Long-term, Apple’s not going away. The stock remains in a long-term bullish trend, it’s just that it’s current situation reveals a risky period as earnings approaches.
$200 represents round-numbered support. Investors love to key in on round numbers as target prices to buy or sell. In this case it would be to buy.
$200 is also the spot where Apple’s 200-day moving average sits.
The 200-day trendline is one of the most important to long-term investors and Wall Street traders.
Buyers will gravitate to this price for those two reasons.
Apple’s risk/reward profile currently favors a washout to $200 if the company doesn’t present a very strong earnings report and outlook.
Investors should expect that the $200 price would see an increase in buying interest, likely representing a bottom for the stock for the next 3-6 months.
I’ll update you further here on any breach below that critical level.