Apple is facing the sharpest selloff this year after the earnings report. Apple shares fell for the fifth day in a row, the first time since last December. Despite slightly beating the earnings expectations, year-on-year revenue growth came out in negative territory for the third quarter, while hardware sales hit the revenues as the smartphone market in the US is still in decline. Additionally, the high dollar index is impacting overseas hardware sales revenue.
Apple’s share price looked a little overpriced when considering the price-to-earnings ratio. It reached its highest point since 2021 and is much higher than the 5-year average of the ratio. Apple investors have enjoyed more than a 50% return since the start of 2023, and after the earnings report, a profit-taking correction can be seen as justified.
There could be some good and bad news incoming for Apple. First, the third quarter is expected to be similar to the second quarter, according to Apple management, meaning no growth expectations for the next quarter. But after the third quarter, things can turn positive. The iPhone 15 is expected to be released in September which could be a perfect time ahead of the holiday season. Holiday sales could boost revenue growth if Apple is able to convince consumers to pay for the new hardware despite inflation still being a concern. Additionally, according to Bloomberg news, Apple is testing its new chip for the next Mac, which is also expected to come out in the final quarter.
After falling for 5 days in a row, Apple shares might attempt to find some support above the 175 level. The RSI (Relative Strength Index) has dropped into the oversold zone, below 30, and historically, this indicator has worked relatively well for AAPL prices. However, the concerning aspect is that the sales volume remains too high. If the stock fails to find support at the 175 level, the downward momentum could extend towards the middle level of the 2023 surge in the coming weeks.
A lower-than-expected CPI (Consumer Price Index) this week could potentially help Apple regain some balance, depending on the data.
