Tech sector behemoth Apple Inc. (AAPL) is getting ready to report earnings next week -- and that could be a very big deal for your portfolio, regardless of whether you own shares.
Apple is stomping into earnings with some major tailwinds, up more than 25.5% on a total returns basis since the calendar flipped to January. And from a technical standpoint, Apple looks primed to kick off a second leg higher.
Here's the thing you might not realize about Apple: This tech giant has been the driving force behind a very material chunk of the S&P 500's gains this year.
After all, Apple is in the best-performing quintile of the S&P. And as the single biggest component in the big index, its double-digit rally translates into just shy of a 1% move in the S&P 500 itself. Put simply, Apple has been dragging the broad market averages higher in a big way in 2017.
And Apple's price trajectory isn't showing any signs of slowing down this spring.
Before we get to that, we should take a look at what's happening with Apple's earnings, set for next Tuesday.
Apple reports second-quarter earnings on May 2. On average, Wall Street is expecting the firm to make a profit of $2.02 a share for the quarter, an ever-so-slight increase over 2016's $1.90 profit for the second quarter. That result was Apple's first quarterly miss since 2012, a fact that could have something to do with the relatively tepid growth Wall Street is demanding.
The second quarter is traditionally somewhat quiet for Apple -- it's typically the second-most profitable quarter of the year, but only thanks to spillover from the first-quarter revenue bonanza that gets booked every year in the quarter ahead of it.
There aren't any major bombshells expected this time around, at least not ones that Apple can control. That doesn't mean Apple won't see a big move in the weeks ahead, however.
Besides the typical flow of new products, there are some potential catalysts in 2017 that could shove shares higher. One of the biggest is U.S. corporate tax reform. Currently, Apple holds $246 billion in cash on its balance sheet -- of that, $230.2 billion is held by foreign subsidiaries. Apple has been reluctant to repatriate that cash due to high U.S. tax rates, but a tax holiday from the Trump administration could potentially slash tax rates on that repatriated cash to around 10%.
That would effectively add almost $90 billion in "found money" to Apple's coffers, a boost that amounts to almost 12% of Apple's market capitalization at current price levels.
That's good reason not to shrug off Apple's ability to sustain its rally -- and speculators are taking note. But it's far from the only reason.
Back to the chart.
The good news is that you don't need to be a trading expert to figure out what's been happening here. Instead, the price action in this stock is about as straightforward as it gets. Apple has been bouncing its way higher in a well-defined uptrend since November, charging 37% higher during that time frame. Put simply, Apple has been a "buy the dips stock" all year long.
Now, shares are showing off another buyable dip this week.
The uptrend in Apple is formed by a pair of parallel trendlines that identify the high-probability range for shares to stay stuck within. Put simply, every time Apple has touched its trendline support level at the bottom of the channel, traders have gotten a low-risk, high-reward opportunity to buy more shares. The fifth bounce is taking shape this week.
Actually waiting for that bounce is important for two key reasons: It's the spot where shares have the most room to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before the channel breaks, invalidating the upside trade). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring Apple can actually still catch a bid along that line before you put your money on shares.
That technical price trajectory is no guarantee of positive results when Apple posts its second-quarter numbers next week -- nobody can tell the future. But it does mean that Apple is positioned as well as possible for upside when earnings do hit.
If you decide to buy the dip here in Apple, it makes sense to park a stop on the other side of $135.