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Why Apple's Technicals Trump the Fundamentals

NEW YORK ( TheStreet) -- Apple's (AAPL - Get Report) stock action on Wednesday was indicative of technical resistance at $97.  The stock began the day  up $2 but finished in negative territory.  Today, the selloff continues. Shares, at $93, are down nearly 2%. 

This pre-earnings window has been a good one as we were able to raise the momentum sell point to $94.50.  Our objective, however, is to preserve capital for the post-earnings run, which has much more potential as we approach the iPhone 6 and iWatch catalysts.  We're selling the entire economic timing allocation of AAPL calls with the stock set to close below $94.50.  

Why should we allow a minor technical alert to supersede Apple's strong fundamentals?  It's an interesting question. 

Google's Future Continues to Depend on Mobile Ads

How Apple's Big Deal With IBM Hurts BlackBerry and Microsoft

Apple fundamentals grow stronger by the day.  Just this week we received the unexpected news that IBM (IBM) will offer Apple products pre-loaded with custom built enterprise apps.  This is huge news. 

Opportunity for expanded penetration exists. Implementation of big data analytics has plenty of room to grow and this partnership between Apple and IBM will pay dividends for years to come and could actually revolutionize industries. 

So now we have IBM selling iPhones and iPads, we have China Mobile (CHL) prepared to sell the larger screen iPhone 6 to a country that craves the larger screen, we have Apple TV with rights to the NFL package, we have iBeacon on the cusp of changing retail, we have Homekit, Healthkit, iWatch, wearables, the Internet of Things...the list of fundamental advantages for Apple goes on.

It's gotten to the point where Apple stock no longer responds the fundamental news because there's too much to digest.  It's a given that the fundamentals are on fire so the stock trades on technical analysis instead.  

We witnessed this phenomenon Wednesday when the unexpected IBM enterprise news faded within the day.  Wall Street's technical timing trumps the fundamentals.  This stock isn't ready to crack $97.  It won't happen until after the earnings report. 

We're selling not because we don't like the company but because we must protect against further downside.  This isn't the moment to carry too much risk.  We gave our positions some wiggle room down to $94.50 but aren't willing to give more at this time.  We'll give more wiggle room with a loose momentum sell point after the earnings report when the catalyst coast is clear and AAPL begins an easy money run ahead of the August dividend and ahead of the September event.  This pre-earnings window was good, the pre-dividend window will be better and the post-dividend window will be the best.  Don't fight the tape.  

We have no problem selling out and quickly buying back in if needs be over the next few days and weeks as the big run gets underway.  Market volatility in this day and age must always be heeded.  $94.50 is our next momentum purchase point as well.  Below it, we're out.  Above it, we're in.

At the time of publication the author had a fluid position in AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate APPLE INC (AAPL) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AAPL's revenue growth has slightly outpaced the industry average of 2.4%. Since the same quarter one year prior, revenues slightly increased by 4.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although AAPL's debt-to-equity ratio of 0.14 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.32, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Computers & Peripherals industry and the overall market, APPLE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • 43.45% is the gross profit margin for APPLE INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.39% is above that of the industry average.
  • Net operating cash flow has slightly increased to $13,538.00 million or 8.26% when compared to the same quarter last year. In addition, APPLE INC has also modestly surpassed the industry average cash flow growth rate of 5.42%.

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