Trading Strategies For Apple Stock Before And After Q1 Earnings

Zinger Key Points
  • Analysts estimated Apple will print earnings per share of $1.94 on revenues of $121.2 billion.
  • Apple broke up from a bull flag on Thursday and regained the 200-day SMA as support.
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Apple Inc AAPL is set to print first-quarter financial results after the market closes Thursday. The stock was spiking up about 3% heading into the event.

When the tech giant printed its fourth-quarter results on Oct. 27, the stock surged 7.56% the following day but declined 13.72% over the subsequent five trading days.

For that quarter, Apple reported an EPS of $1.29 on revenue of $90.1 billion. The company came in ahead of the EPS estimate of $1.27 on revenues of $88.9 billion.

For the first quarter, analysts estimated Apple will print earnings per share of $1.94 on revenues of $121.2 billion.

Traders and investors will be watching Apple’s sales for the quarter leading up to the holidays, paying attention to iPhone numbers in particular.

On Thursday, managing partner at Deepwater Asset Management, Gene Munster, said on Twitter that Apple’s supply has caught up to demand.

“Even if there is talk of a modest slowdown in March, it does not change the long term strength of the iPhone franchise,” Munster said.

From a technical analysis perspective, Apple’s stock looked neutral heading into the event, having broken up from a bull flag pattern but becoming overextended. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

Options traders, particularly those who are holding close-dated calls or puts, take on the extra risk because the institutions writing the options increase premiums to account for implied volatility.

See Also: Apple Q1 Earnings Preview: Did Tech Giant Weather Macro Challenges Better?

The Apple Chart: Apple gapped up above the 200-day simple moving average (SMA) on Thursday, fell to test the area as support and bounced up off the level. The 200-day SMA is a bellwether indicator, and when a stock trades above the area, it’s bullish.

The move higher on Thursday was the result of the stock breaking up from a bull flag pattern that was formed between Jan. 6 and Wednesday. The measured move of the bull flag is about 18%, which suggests the stock could surge toward $166 if the uptrend continues.

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Apple’s relative strength index (RSI) is measuring in at about 70%. When a stock’s RSI reaches or exceeds that level, it becomes overbought, which can be a sell signal for technical traders.

If Apple enjoys a bullish reaction to its earnings print and flies higher on Friday, a pullback is likely to come next week. If the stock suffers a bearish reaction and falls under the 200-day SMA, bullish traders will want to see the stock consolidate under the area without printing a lower low under the most recent higher low, which was formed on Wednesday at $141.32.

Apple has resistance above at $150 and $153.92 and support below at $146.41 and $143.51.

Photo via Shutterstock.

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