NEW YORK (TheStreet) - An iPhone price increase, sub-$1,000 laptops (iPad with keyboard?) and iWatch rumblings provide plenty of exciting fodder for Apple (AAPL) shareholders and potential investors to visualize renewed growth.
But the market isn't buying it.
Investors are taking money off the table ahead of next week's earnings, Wednesday after the close. Experienced investors know charts lead fundamentals, not the other way around. During the last six months, and markedly since the start of 2014, money has flowed out of Apple and into Microsoft (MSFT).
Microsoft, as of the Thursday close of $40, is up nearly 7% for the year to date. Apple, at around $525, is down nearly 7%.
Two weeks ago, Microsoft's stock reached yet another 52-week high. Insatiable demand for the software maker by investors gobbling up shares turned March into a feeding frenzy. Three weeks in a row the stock reached new multi-year highs. Apple shares appreciated in March also, but the price was unable to rise above the declining supply line (red line in the chart).
The daily chart has too much noise in it for long-term investments in my opinion. The monthly chart supported my bull thesis in Apple's Buyback Program May Mean a Higher Dividend. It wasn't difficult to maintain a bullish bias while the company generated incredible amounts of revenue and pays a dividend yield over 2%.
Now the mood is shifting, and the fundamentals and technicals indicate expectations of further weakness. A 2% dividend isn't comforting if the stock is declining faster. In the key monthly chart above, I circled in white April's bar.
It's broken below the demand line, and this type of break more often than not is followed with continued weakness. Stockpickr's Roberto Pedone examines the daily price chart in Want to Buy Apple? Think Again. There's a good explanation why investors are rotating out, too.
According to ComScore, Apple's iPhone popularity may have reached a zenith in the U.S. If there is one number to which all analysts pay particular attention it's iPhone sales and market share. iPhones drive revenue and profit with each sale, but also future sales from apps and other content by users.
Microsoft will soon begin showing measured improvements in market share if its aggressive push into mobile pays off. Obviously, an increase from 3.1% to 3.4% falls short of celebration and a0 .5% drop for Apple doesn't strike fear, but Microsoft's embrace of Google's (GOOG) model of giving away the operating system to sell apps and content is a proven winner. Google went from zero to hero, annihilating BlackBerry's (BBRY) seemingly total dominance in the process.
Investors should have little doubt it will work for Microsoft, and the only question is how large of a bite will Microsoft take from Google and will it result in more or less than Apple's decline. At a minimum, investors need to ask -- if Apple decides to draw a red line in the sand for market share, what will the margin impact look like?
Falling margins are not a new concern and bulls (including myself, recently) quickly identify Apple's margins as remaining attractive, albeit conceding competition is turning the company's main products into commodity items.
Apple is reportedly testing the waters to ascertain the market's receptiveness to a $100 price hike on the next-generation iPhone. If it can negotiate even $50 more per phone it may appear as a significant victory. But there's a catch. You can bet Verizon (VZ), AT&T (T), Sprint (S), T-Mobile (TMUS) and others will more aggressively market other non-Apple products.
A higher subsidy rate may turn into an example of "be careful what you wish for." If a carrier is offering a $100 greater subsidy for iPhones, it's advantageous to offer $30 spiffs to sales associates to sell competing models.
Some of the price increase could be passed directly to the consumer, and it appears likely that a combination of carriers absorbing some and passing on the remainder is probable if Apple does raise the price. Unfortunately, subscribers are increasingly abandoning the razor-razorblade model of a cheap phone and higher monthly bills for prepaid and lower total cost plans.
Faced with more expensive iPhone 6s or comparable Android and Windows Mobile phones costing much less, it's clear some will select a non-iPhone. Another headwind Apple CEO Tim Cook mentioned is carriers have increased their demand of customers to complete their two-year contracts before upgrading their phones.
I loathe writing a bearish Apple article, especially before earnings. I maintain a vigilant watch over my shoulder for flying shoes aimed at my head by a perma-bull. However, it would be a disservice to not express my concern after so many articles calling for long exposure in the company.
I also remain highly skeptical of an iWatch adding significant profits, although I won't go so far as to say I expect it to be a total flop. Apple may add a keyboard to an iPad and call it a sub-$1,000 laptop killer but, again, it's hard to envision margin expansion or a windfall of profits in that space while Microsoft is discounting (and maybe giving away free soon) Windows.
For those who want to remain long, I suggest selling in-the-money call options in front of earnings to hedge and profit from the upcoming volatility.
At the time of publication, Weinstein had no positions in securities mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.