Investment Idea

Bellwether Apple could be the next shoe dropping

Carlsquare

1 Sep 2022 | 2 min read

The Apple share has been relatively resilient despite the turbulent equity markets in 2022.

The Apple share has been relatively resilient despite the turbulent equity markets in 2022. It also led the way in the recent bear market rally while other important FAANG stocks such as Alphabet and Meta lagged on concerns of slowing revenue growth. In fact, during the summer, the shares traded close to all-time highs.

While Apple is a formidable business, consumers worldwide are under severe pressure from rising inflation and interest rates. Hence, we see a risk of Apple running into growth headwinds just like its’ Big Tech peers. In contrast to, e.g., Meta and Alphabet, the valuation is also still quite high from a historical perspective, especially considering the rise in interest rates. In 2018, when the ten-year US Treasury rate was also above three per cent, the Price/earnings (PE) ratio was around 15x, well below the current ratio of some 25x.

Apple PE NTM (Next Twelve Months) versus US 10-year Treasury yield, all in USD

Source: S&P Capital IQ and Carlsquare. Note: Past performance is not a reliable indicator of future results.

From a technical perspective, the Apple share recently broke below the rising support line of the upward move that started at the end of June. It is now once again trading below MA200. We would not rule out a short-term positive bounce at this point after the recent share price weakness. However, if this long-term support is not regained soon, there is likely further volatility ahead. An ominous sign is that Nasdaq also is breaking down below its technical support.

Next week on September 7, Apple will be hosting a release event, which we would expect to revolve around iPhone 14, and there are rumours of, e.g., satellite phone functionality. However, share price reactions to similar release events in recent years have been mostly negative, according to Bloomberg, so we would not bet on a strong rebound from release-related news flow.

Apple share (in USD), daily 12-month price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

We believe the ~USD 150 level could be the first possible target as this represents March lows and June highs as well as the Fibonacci 50 level of the recent rally.

Apple (in USD), August 2017 to August 2022

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The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

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