Apple reports Q3 earnings after the close of trading on Tuesday. Wall Street always gets excited when AAPL reports, because investors and detractors are extremely passionate about the potential of the company — positive or negative.
All eyes will be on the “line items:”
+ iPhone 7 sales
+ Units shipped… Macs shipped… iPads shipped
+ iPhone selling prices
+ Gross Margins
+ Will a new laptop be released?
+ The China factor
+ Guidance
+ And Tim Cook’s spin on business
There are lots of “known unknowns” to assess before Tuesday evening, which is why I undertake a ritualistic chart-based exercise to see if my technical set-up work in AAPL provides clues about the likely reaction to the earnings release. The chart work enables me to strip away the fundamental pre-EPS hype to determine if AAPL is positioned either for a disappointment, an upside surge, or a neutral reaction?
The daily chart shows that AAPL has carved out a 16-month rounded base formation, or accumulation pattern. Every time AAPL pressed into the 93-90 area since August, 2015, it found buying interest, which created a series of significant, elevated-volume lows that formed a big base of support. In addition, let’s notice that AAPL crossed from beneath to above its 200 Day EMA at 103 in late July, then successfully retested the up-sloping EMA at 104.40 again in September, after which AAPL rocketed to 116 (thanks in-part to the Galaxy Note 7 debacle). AAPL has been trading between 112 and 118 for the past month, digesting its sizeable multi-month gains from the 92 area, allowing time for all of my “trading MA’s” to turn up into steepening, positive (bullish) slopes. The price structure is perched right near the high of the entire May-October upleg, poised for upside continuation, especially if a bullish catalyst emerges.
AAPL also looks positive on the chart comparing its daily pattern with that of the benchmark S&P 500 (SPX). Since AAPL hit is low of 89.00 in the pre-market hours of May 13, 2016, the stock has climbed 30% into Monday’s close at 117.65, whereas the SPX is up just 5.8% during the same time period. Currently, AAPL is consolidating just 1.2% beneath its Oct. 10 th high of 119.00, while the SPX is trading 2% beneath its Aug. 15 th all-time high at 2193.81 and will confront heavy resistance in any effort to revisit its mid-August peak.
A third chart illustrates AAPL’s Relative Strength compared to the QQQ (NDX-100) since late July (AAPL represents 10.8% of the QQQ, and is its largest component). The Relative Strength pattern alerts us to two potentially significant characteristics about AAPL: 1) AAPL is outperforming the QQQ, the pattern of which exhibits bullish form, and indicates that money is more confidently moving into AAPL and out of the QQQ within a developing risk-on environment. Investors typically move money into the QQQ from its underlying components to achieve a greater measure of safety (risk-off). Just the opposite is happening now. 2) The larger 4-year Relative Strength pattern suggests strongly that AAPL will continue to outperform the “safer” QQQ in the upcoming months.
What might we expect for AAPL in the aftermath of its forthcoming earnings report? AAPL presents a very compelling independent technical picture, as well as a strong relative position vis-à-vis both the benchmark S&P and the QQQ (NDX-100). Although these set-ups in no way guarantee a positive reaction to earnings, AAPL’s overall technical set up indicates that the stock is poised to react positively to earnings news, and otherwise should absorb a mild to moderate disappointment. In other words, AAPL argues for an upside thrust, or a buy-the- weakness response to its quarterly report.
