Apple Faces Earnings After Downgrade to 'Sell' -- Plus Jim Cramer's Take
Apple (AAPL) - Get Report remains an obvious investment choice as a core holding in a long-term investment portfolio. The stock has a price-to-earnings ratio of 10.84 and a dividend yield of 2.37%, compared to the yield of 1.546% for the 10-year U.S. treasury.
Shares of Apple have lagged since setting their all-time intraday high of $134.54 on April 28, 2015. The stock closed Monday at $97.34, down 7.5% year to date. It is in bear market territory, 27.6% below its all-time high.
Apple reports second-quarter earnings after the closing bell on Tuesday. Analysts expect this benchmark company to earn $1.39 per share. The company has a huge stockpile of cash, making a special dividend an option to stabilize the stock.
On Monday, BGC Partners downgraded Apple, giving the stock an unprecedented sell rating and lowering the price target to $85 from $110.
My proprietary analytics suggests that the stock should be bought on weakness to that level.
Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Jim Cramer and Jack Mohr of Action Alerts PLUS wrote on Friday that investors shouldn't panic.
"We want to reiterate our belief that this quarter will reveal a challenging environment for Apple, but we note that this has long been expected by analysts and investors," Cramer and Mohr commented. Although the stock may face a bit of trouble in the short run, "we remain in Apple for the long term," they added.
Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.
Here's the daily chart for Apple.
Courtesy of MetaStock Xenith
The daily chart for Apple shows the Fibonacci retracement levels of the decline from the all-time high of $134.54 set on April 28, 2015, and the 2016 low of $89.47, set on May 12.
Apple has been under a "death cross" since Aug. 26, 2015, when the 50-day simple moving average fell below the 200-day simple moving average. A "death cross" signals that lower prices lie ahead and that investors should sell strength to the 200-day simple moving average.
The stock closed at $109.69 on Aug. 26, 2015, and tested its 200-day simple moving average at $121.84 on Nov. 3 and on April 4, when the average was $111.32. The stock set its 2016 low of $89.47 on May 12 and rebounded to its 23.6% retracement of $100.13 on May 26, June 7 and July 20.
On Monday, the stock declined to a test of its 50-day simple moving average of $96.90 with the day's low of $96.92.
If Apple can hold its 50-day simple moving average, the first upside target is back to the 23.6% retracement of $100.13. On a positive reaction to earnings, the rebound could eventually fill the price gap to the April 26 low of $103.91. Apple reported its last earnings report after the close on April 26, and gapped lower on April 27.
Here's the weekly chart for Apple.
Courtesy of MetaStock Xenith
The weekly chart for Apple ended last week positive, with the stock above its key weekly moving average of $97.45 and above its 200-week simple moving average of $93.31. The weekly momentum reading is projected to rise to 48.70 this week, up from 40.57 on July 22.
Monday's close was below the key weekly moving average on the Wall Street downgrade to sell. This makes the reaction to earnings extremely important.
A positive reaction to earnings will keep the weekly chart positive, offsetting the sell rating. A negative reaction to earnings will likely result in a weekly close below its 200-week SMA of $93.31.
Investors looking to buy shares of Apple should do so on weakness to $83.03, which is a key level on technical charts until the end of this week.
Investors looking to reduce holdings should consider selling strength to $102.80 and $110.22, which are key levels on technical charts until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.