'Fast Money' traders talk weakness in Apple

Key Concepts

• MACD (Moving Average Convergence Divergence): A trend-following momentum indicator that shows the relationship between two moving averages of prices. A sell signal occurs when the MACD line crosses below the signal line.
• 50-Day Moving Average: The average closing price of a stock over the past 50 days, used to identify trends. A break below this average can signal a potential downturn.
• Cloud-Based Support Level: A support level identified using Ichimoku Cloud, a technical analysis indicator.
• RSI (Relative Strength Index): A momentum oscillator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock.
• Free Cash Flow: A measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures.
• Valuation: The process of determining the economic worth of an asset or company.
• Momentum Shift: A change in the speed or strength of a price movement.
• Intermediate Term Shift: A change in trend expected to last several weeks or months.

Apple’s Intermediate-Term Downtrend & Market Perspectives

The discussion centers around a potential intermediate-term shift in Apple’s stock performance, with analysts debating the severity and duration of a possible downturn. Apple’s stock has underperformed compared to its peers, with only Meta showing a smaller gain over the past year, losing more than 5% of its value.

Technical Analysis & Sell Signals

Katie Stockton initiates the conversation, highlighting concerning technical indicators. She points to a “sell signal” from the weekly MACD, indicating a potential interruption of the uptrend lasting more than a few weeks. Specifically, Apple has already experienced a decline of over 11% from its recent high in early December. The 50-day moving average and a key cloud-based support level have both been breached. Stockton identifies the next support level for Apple’s chart around $243, representing a 6-7% decline from current levels. While acknowledging the long-term trend remains intact, she emphasizes the significance of this momentum shift.

Trading Strategies & Recommendations

Stockton clarifies that her firm generally doesn’t advocate selling stocks or shorting stocks close to their highs, due to the risks associated with long-term uptrends. However, they recently issued a short recommendation on Palantir. For Apple, she suggests that potential investors should wait for support discovery at lower levels before adding exposure. She doesn’t explicitly recommend selling Apple outright.

Contrasting Perspectives & Market Influence

Jim Cramer agrees with Stockton’s analysis, noting Apple’s long-term uptrend since March 2020. He acknowledges the noteworthy weakness and the fact that other companies are currently taking the lead. He also points out the difficulty of Apple experiencing a significant decline due to its inclusion in numerous ETFs and funds. However, he agrees that a price target of $243 is significant.

Steve emphasizes the importance of the broader market context, stating that two-thirds of all stocks trade with the overall market. He suggests that Apple’s performance is heavily influenced by the overall market direction. He also notes Apple’s substantial install base of 2.35 billion devices and its significant cash reserves. He leans towards a “stay in the name” approach, observing how it reacts.

Concerns Regarding Valuation & AI

The discussion also raises concerns about Apple’s valuation, its perceived lag in the AI space, and potential impacts on gross margins due to rising memory prices. The surge in memory stock demand is noted as a potential headwind. The valuation is questioned, with a comparison to Ford, suggesting investors might hesitate to pay a premium for Apple at its current price-to-earnings ratio.

Services Growth & Long-Term Outlook

Despite the concerns, the analysts acknowledge Apple’s growth in its services sector, which has increased from 23% to nearly 29%. This is seen as a key driver of margin expansion. One analyst frames the situation as a “pair of twos” rather than a bearish setup, suggesting a potential correction rather than a prolonged decline. Apple’s annual free cash flow is estimated to be around $100 billion, further supporting a cautious optimism.

Logical Connections & Synthesis

The conversation flows logically from technical analysis identifying potential sell signals to a broader discussion of market influences, valuation concerns, and long-term growth prospects. The analysts build upon each other’s points, offering contrasting perspectives while generally agreeing on the significance of the current situation. The initial technical concerns are contextualized by broader market trends and Apple’s fundamental strengths.

Main Takeaways

The primary takeaway is that Apple is facing an intermediate-term downtrend, signaled by key technical indicators. While the long-term outlook remains positive, investors should exercise caution and potentially wait for lower support levels before adding to their positions. The broader market context and Apple’s valuation are crucial factors to consider. The analysts suggest a nuanced approach, acknowledging both the risks and opportunities presented by the current situation.