Apple Inc. (AAPL) earnings preview: I am looking at a possible 5% decline
As Apple Inc. gears up to release its earnings after market close on May 2, 2024, all eyes are on the potential market reactions. Historically, Apple's earnings have been a significant catalyst, but given the technical and options market data, there are strategic considerations that investors and traders might want to heed.
1. Technical Outlook on Apple's Stock
A detailed review of the Apple stock weekly chart reveals that it has previously broken up a significant bull flag pattern, as highlighted in the first image. The stock has been in a corrective phase, and my analysis suggests a possible retest and potential 5% decline to approximately $159-$161. This expected move is not necessarily a single-day reaction but could unfold over the days following the earnings announcement. Such a decline would represent a retest of the broken bull flag, a common technical move which could attract buying interest at lower prices.
2. Options Market Sentiment vs. Historical Moves
The options market has historically overestimated the movement of Apple shares post-earnings. Over the past 12 quarters, the options market predicted an average earnings-related stock move of around ±4.0%, while the actual moves averaged only 3.1% in absolute terms. This overestimation could imply that the options market is pricing in more risk than what has materialized, suggesting a possible overreaction by traders on earnings day.
3. RSI and Potential for Further Declines
The Relative Strength Index (RSI) on the weekly chart shows a reading of 42.47, indicating that the stock is not yet in the oversold territory (typically below 30). This leaves room for the stock price to decline further without hitting technical extremes, possibly making lower price levels an attractive entry point for longer-term investors.
Earnings Expectations and Strategy
With Apple's earnings on the horizon, traders should prepare for potential volatility. The anticipated decline to $159-$161 post-earnings could provide a strategic buying opportunity for those who believe in the fundamental strength of Apple and are looking to capitalize on short-term price movements.
Investors might consider the potential for an exaggerated initial drop due to the overestimated options market predictions. If Apple’s earnings reveal strong fundamentals, any post-earnings dip might be short-lived, providing a quick rebound opportunity.
Conclusion
Given the current technical setup and historical options behavior, both traders and investors should stay vigilant. Monitoring the price action near the $159-$161 level and keeping an eye on the RSI could help in making informed decisions. As always, it's crucial to align these technical insights with the overall market sentiment and Apple’s actual earnings performance to navigate the post-earnings landscape effectively.
This is not financial advice, just another's guy's opinion on Apple stock before earnings tonight. And if it gets all the way to $155, as I mentioned back in April 4th where I think it's headed, then I will be interested in buying Apple stock, should the signs from the futures market (ES, NQ) provide supportive signs. Stay tuned to ForexLive.com
