Tech giant Apple (NASDAQ:) is expected to report earnings for the first quarter of 2022 on Thursday, January 27 after the US market closes. Expectations are for earnings per share of $1.89, up from $1.68 for the year-ago quarter. Revenue is estimated at $118.68 billion, up from $111.44 billion recorded in the corresponding quarter last year.
The Cupertino, California-based company knocked on both numbers; analysts predict that the iPhone maker will again beat consensus expectations this quarter.
Yet, even if it's right, Apple's stock can still sell. Investors are jettisoning technology stocks, which represent growth stocks and currently have the highest, foamiest valuations. What's happening in the broader stock market right now is bigger than Apple – the world's largest company by its market cap of $2,652 trillion.
Traders are now counting on a 25 basis point rate hike by the Fed in March, which would make money more expensive, making it more difficult to justify overextended technical valuations. As investors move into lower-cost cyclical companies and get out of technology, being the largest mega-cap tech company could become a liability.
Indeed, last week the group lost 7.6%, trailing the major US indices, all of which had their worst weekly performance in months.
On the other hand, Apple's earnings report comes after this month's Federal Reserve meeting. Should the coming period be calmer than expected, investors will probably fall back on technology stocks and Apple in particular.
With fundamental triggers still fluid, could technical factors provide additional clues as to where supply-demand dynamics currently stand?
Apple completed a small top, supported by the 50 DMA. The tricky part about this top is that it has developed above the price's upward trendline since the infamous March 2020 bottom, guarded by the 100 DMA.
This means that the stock may bounce off that uptrend line and continue with the sustained uptrend. However, if the implied target of the top is reached, the price will penetrate the uptrendline as it moves lower.
While both the daily RSI and MACD have triggered sell signals, they may be approaching oversold conditions after the stock moves into correction territory and has lost more than 10% of value since the January 3 record closed.
]Trading strategies
Conservative traders should wait for a new high before taking a long position; you can also wait for the price to drop below the uptrendline and then retest it from below before selling.
Moderate traders would sell if the price retests the neckline of the top or buy when it hits the uptrend line.
Aggressive traders could short at will, following a coherent trading plan. Here's an example:
Trade sample
Admission: $164
Stop Loss: $165
Risk: $1
Goal: $160
Reward: $4
Risk Reward Ratio: 1:4
Author's Note: We don't do fortune telling. A technical forecast is an expectation that is based on analysis derived from historical data. We don't know what will happen to this particular transaction. What we are saying before is that if traders behave in this situation as they have done before, then the outcome is more likely to continue in a certain way, as described above, based on our interpretation. To increase the chances of better returns overall, learn how to write a plan that fits your timing, budget, and temperament, rather than working on a trade-by-trade basis. Until you learn how to do that, you can use our examples to practice, but don't necessarily expect a profit. That happens when you gain enough experience to develop your own trading style.
