Apple Inc. (AAPL) Earnings Preview: I See a Possible 5% Downside
As Apple Inc. prepares to report earnings after the market close on May 2, 2024, all eyes are on potential market reactions. Historically, Apple’s earnings have been a significant catalyst, but given the technicals and options market data, there are strategic considerations that investors and traders may want to take into account.
1. Technical outlook on Apple stock
Apple weekly chart and my expectations for a retest at $160
A detailed look at Apple stock’s weekly chart reveals that it has already broken a significant bull flag pattern, as highlighted in the first image. The stock is in a corrective phase and my analysis suggests a possible retest and a potential 5% decline to around $159-161. This expected movement is not necessarily a single-day reaction but could take place in the days following the announcement of the results. Such a decline would represent a retest of the broken bull flag, a common technical move that could attract buying interest at lower prices.
2. Options Market Sentiment Compared to Historical Movements
The options market has historically overestimated how Apple shares will move post-earnings. Over the past 12 quarters, the options market expected an average earnings-related stock move of approximately ±4.0%, while actual moves averaged only 3.1% in absolute terms. This overestimation could imply that the options market is pricing in more risk than actually materialized, suggesting a possible overreaction by traders on earnings day.
3. RSI and potential for further declines
Weekly Apple Stock Relative Strength Index (RSI)
The relative strength index (RSI) on the weekly chart shows a reading of 42.47, indicating that the stock is not yet in oversold territory (usually below 30). This leaves room for the stock price to fall further without reaching technical extremes, which could make the price decline an attractive entry point for long-term investors.
Earnings expectations and strategy
With Apple earnings on the horizon, traders should prepare for potential volatility. The expected decline to $159 to $161 after earnings could provide a strategic buying opportunity for those who believe in Apple’s fundamental strength and are looking to capitalize on near-term price movements.
Investors may consider the possibility of an exaggerated initial drawdown due to overestimated forecasts in the options market. If Apple’s earnings reveal strong fundamentals, any post-earnings decline could be short-lived, providing an opportunity for a quick rebound.
Conclusion
Given the current technical setup and historical options behavior, traders and investors should remain vigilant. Monitoring price action near the $159-$161 level and keeping an eye on the RSI could help in making informed decisions. As always, aligning this technical information with overall market sentiment and Apple’s actual results is crucial to effectively navigating the post-earnings landscape.
This isn’t financial advice, just another guy’s opinion on Apple stock ahead of tonight’s earnings. And if it hits $155, as I mentioned on April 4th, which is where I think it’s headed, then I’ll be interested in buying Apple stock, if the futures market signs (ES, NQ) provide favorable signs. Stay tuned to ForexLive.com
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