Apple Earnings Preview - Ready to take a bite?

Apple the company whose products are so intertwined in our lives reports on the 28 October after market hours (9.30pm UK time and 06.30am AET). The tech giant usually sees around a 3.4% price move in either direction and has a 100% track record of beating EPS consensus ($1.23 for this set of results) estimates over the last 8 quarters.

In terms of specific factors for the company which should be on your radar, I’ll run through them below. Beginning with the macro picture, it’s been tough for equities, especially high growth tech names who get penalized when interest rates move higher, leading to multiple compression. On top of that inflation is rising globally and this could lead to a squeeze on companies margins. Stagflation concerns also led to some risk-off deleveraging amongst the sexy tech shares. Supply chain bottlenecks have also led to delays in production and deliveries, but this should correct itself in the shorter term.

Moving the spotlight onto Apple’s company specific factors. Litigation has weighed on the share price recently as a judge ruled that Apple must allow app developers to provide alternative payment methods for apps, effectively sidestepping Apple’s commissions of 15-30%. The biggest risk was the ruling of the App store being classified as a monopoly which luckily for Apple they managed to avoid. This will lead to a slight dent in their App store revenues for sure, but how big the dent will be? Tough to say as many may like the convenience of using Apple’s integrated payment system. Gaming via the App store provides Apple with chunky operating margins, however, one of its biggest sources of revenue are from China where we are now seeing a regulatory clampdown to limit gaming time by kids.

Apple has just launched their iPhone 13 which features upgrades to the battery and camera. Pre-order data is looking solid so far and networks which spent billions building out 5G infrastructure networks need to recoup this investment so are offering discounts on the new iPhones as a way to balance the books. Lastly, we know Apple has a gargantuan amount of cash to be deployed (most likely via share buybacks) which shareholders should be happy about.

Apple has been moving in an ascending channel since the turn of this year. It reached a high of $157.26 back in early September and has now retraced into the low $140s. For the bulls the 21-day EMA needs to reverse and cross back above the 50-day SMA. Right now the 21-day EMA is capping gains as well as the horizontal resistance at $145. The RSI is a bit in no man’s land, but leaning closer to oversold territory. On the upside, I'd look towards the $145 resistance and above there the 50-day SMA at $147. On the downside, $140 around the lower trend line and then if that is broken the 200-day SMA around $135 would be key. 

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