Is The Third Time The Charm For Apple To Bounce Off Its 50 Day Moving Average?

Jan 24 2014, 8:56am CST | by

While reported results and guidance are probably the two biggest factors on how a stock reacts the day after earnings are announced the overbought or oversold position on the shares can also be a factor. Below is a brief recap of Apple’s previous seven quarters and what the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) were at the time. Each quarters headline includes the closing price of the shares on the day results were released and the following day. I have also included a second chart showing Apple’s stock bouncing off its 50 day moving average for the third time this year. (Note that my family and I own Apple shares and have sold put options which is a bullish option play).

I believe that a stock’s RSI and MACD can be useful in determining if a stock is oversold or overbought and can portend its movement over the short-term (2 to 3 weeks). They can also be helpful in explaining why shares are volatile the day after financial results are announced.

Apple StockCharts Jan 23 2014 #3″ src=”http://b-i.forbesimg.com/chuckjones/files/2014/01/Apple-StockCharts-Jan-23-2014-3.png” width=”845″ height=”658″ />

Source: StockCharts.com

March 2012 quarter reported on April 24: $560.28 to $610.00

Apple’s gross margin hitting an all-time high at 47.4% and crushing revenue (21% above guidance) and EPS (45% above) were the two biggest reasons the shares increased $50 the day after results were announced. It was to be the last quarter there would be such huge outperformance. The shares RSI were in oversold territory with the MACD being close to neutral so the oversold position helped the share gain.

June 2012 quarter reported on July 24: $600.92 to $574.97

Gross margin declined to 42.8% and was the first quarter where revenue guidance (3% outperformance) and EPS (7%) were not soundly trounced. The RSI was showing the shares to be overbought as was the MACD to a smaller degree which helped fuel the $26 decline.

September 2012 quarter reported on October 25: $609.54 to $604.00

Gross margin continued its decline to 40.0% and while revenue (6% outperformance to guidance) and EPS (12%) were better than last quarter the stock was about to continue its decline from its all-time closing high of $702.10 on September 21, two days before the iPhone 4S became available. While the RSI and MACD were in oversold territory the technicals weren’t enough to stop the stock from declining over the next few weeks which turned into months.

December 2012 quarter reported on January 23: $514.01 to $450.50

Gross margins continued its decline for the third quarter in a row to 38.6%. EPS beat guidance by a good margin (24%) but revenue was only 5% higher than guidance. It was guidance for the March 2013 quarter that helped to spook the market. Management changed its style of guidance to giving ranges for revenue, gross margin and operating expenses vs. a single point. Gone were the days where the company would crush the numbers. At the mid-point of revenue guidance it would only increase 7% year over year. The RSI was close to being neutral and the MACD was in oversold territory so there wasn’t much support from the technicals.

March 2013 quarter reported on April 23: $406.13 to $405.46

While gross margin declined for the fourth quarter in a row to 37.5% (which was later found out in the 10-Q filing that it would have been about 38.5% without catch-up warranty accruals) the company announced an increase in its dividend and a large increase in its stock buyback program from $10 to $60 billion. While the shares didn’t move much the day after earnings having the RSI in an oversold position and MACD also showing oversold probably helped over the next few days as investors updated their models for such a large stock buyback.

June 2013 quarter reported on July 23: $418.99 to $440.51

Gross margins declined for the fifth quarter in a row to 36.9% but with guidance for the next quarter of 36% to 37% some of the fear of continued deterioration seemed to have abated. iPhone sales were stronger than expected and since they generate over 50% of revenue with strong gross margins the shares increased nicely the next day. The RSI was in an overbought position with the MACD neutral so they didn’t have much influence on the shares.

September 2013 quarter reported on October 28: $529.88 to $516.68

Apple had updated its guidance in September when it announced that it had sold over 9 million iPhone 5c’s and 5s’ in the first three days. The stock had moved up from $396 on June 30 and $477 on September 30 so it wasn’t too surprising to see a pull-back especially since the RSI had reached an overbought position as had the MACD.

December 2013 quarter to be announced on January 27
Expectations are running fairly strong for the iPhone and iPad and the shares have moved up nicely to $556. The RSI has moved up slightly into overbought territory with the MACD almost at neutral so these shouldn’t play too much in affecting the shares if they wind up moving on Tuesday, January 28.

The shares rebounded nicely on Thursday, January 23

Early on Thursday Apple’s shares were down over $5 to $545. They wound up getting a lift from Carl Icahn and for the third time this month they either recovered after breaking below the 50 day moving average or bounced off of it to close at $556. If the December results are as strong as I believe they could be and if guidance is in-line with expectations the shares could move nicely higher since from a technical perspective they are only slightly overbought and have found support three times at the 50 day moving average.

Source: StockCharts.com

Follow me on Twitter @sandhillinsight. You can find my other Forbes posts here.

Source: Forbes Apple

 
 

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