Apple is down over 12% in 2 months! Why??

Stock Movement:-

Apple’s stock is off to a bad start in 2024 as Bears appear to have completely taken over the stock, causing it to tank over 12% in less than 2 months!

When the US Banking Crisis hit in March 2023, Apple could not avoid the fallout as it declined alongside the broader market. Apple lost over 3% as the S&P 500 tumbled due to panic selling. However, the stock hit its support at $147.57 as the stock reversed and resumed its bullish rally that began in January 2023.

Strong demand for iPhones, internal cost-cutting measures, the launch of Apple’s own BNPL product, stock upgrades by brokerages, and the confirmed launch of its mixed reality headset in 2023 fueled the bullish rally as Apple remained a buyers’ pick throughout April.

However, the stock was witnessing a slowdown in early May as Apple hit its resistance at $170.83 as Bulls’ momentum seemed to falter. However, Apple’s quarterly earnings surpassed all estimates and revitalized investor interest as the stock breached its resistance and continued climbing.

The momentum slowed down in May as the US market was trading sideways, but Bulls continued driving the stock up in June and July as stock buybacks and dividends made the stock a good bet in adverse global financial markets. Apple reached $3 trillion by the end of July 2023, becoming the first company to do so, as it challenged its resistance at $196.31. The stock was stuck in a fierce battle between buyers, who wanted to take it further, and sellers who wanted to drive it down, as the stock traded around the resistance.

However, when August began, Bulls lost all power as Bears took over the stock, prompting sharp declines in the stock. The company’s earnings report showed declining iPhone sales for the third consecutive quarter as product revenues fell for 3 quarters. Despite the company’s robust growth in service revenues, Apple’s stock lost almost 5% in a day as Bears dragged the company and the overall market down.

Another major shock came in the form of supply constraints. Foxconn, which was Apple’s largest manufacturer, trimmed its production forecast for 2023 due to headwinds to the global electronics market. This resulted in further selling as the stock fell through its support at $180.93.

However, buyers were ready below such level as the stock began climbing and regained the $180 level. Bulls continued driving the stock up as anticipation for Apple’s new launches in September 2023 and positive market sentiments were driving the stock up. Although the climb continued throughout the remainder of August and for a few days in September, Apple began facing major regulatory issues.

China had reportedly banned Central Government officials from using iPhones for official work or bringing them to office! Moreover, the EU had simultaneously announced that Apple was among the few tech giants that would be subject to further regulations! The combination of both factors ended up dragging the stock down as it lost over 3% in a single day.

Despite the company rolling out several new products in mid-September, investors were not pleased as the company fell through its support at $180.93 while taking support at $170.83, losing 9% in September 2023. October brought about a bullish move in the stock as a positive US Jobs report improved market sentiments and took the stock back to its resistance at $180.93, jumping for 9 consecutive trading sessions!

However, buyers were not strong enough to move ahead as the stock reversed from the level. While investors expected the decline to be normal, poor iPhone 15 demand and stronger-than-expected US GDP data stoked rate hike fears as Apple’s stock breached its support at $ 170.83 and fell 2.5% in a day!

While buyers managed to take the stock back up to the support level, Apple dazzled investors with its latest quarterly earnings. The company beat all Wall Street estimates as its services segment reported record sales of over $22 billion while iPhone sales grew 3%. 

Positive results combined with a robust bullish rally in the market drove Apple up as the stock reclaimed its support at $180.93 and continued rising. As the S&P 500 kept climbing, Apple broke through its resistance at $196.31 and almost hit $200 per share, gaining 19% in the process. The level proved to be too much for the stock as it fell back down but traded near the level. 

2024 began as US markets were weak initially, but Apple had a particularly bad start as the first trading day of 2024 saw the stock lose over 3.5% as brokerages downgraded the stock, flagging weak demand for the latest model and persisting demand headwinds. The stock hit its support at $180.93 as the level proved to be a strong support as it rebounded from that level. Apple’s stock was upgraded by brokerages as it rose to $196.31 again but could not go past it again. The stock remained range-bound throughout February 2024.

However, March brought about weakness in the stock as China began pivoting away from American tech. The company saw a 24% decline in iPhone sales in China while Huawei’s jumped 64%, sparking demand concerns in Apple’s largest market. The stock fell below its support at $180.93 and took support at $170.83. 

With the S&P 500 hitting new highs, Apple was also gaining ground, but on 21st March 2024, the stock tanked over 4% when the US Department of Justice sued the iPhone manufacturer, accusing it of monopolizing the smartphone market, hurting smaller rivals, driving prices up, and violating antitrust laws!!

Analysis:-

Technically, the stock is currently trading above its 5 and 20-day averages but below its 50, 100, and 200-day averages. Moreover, at an RSI of 45.39, the stock is neither overbought nor oversold. The stock’s latest decline brought the stock back to its support at $170.83 (which the stock has respected multiple times in 2023 alone), wiping out almost 2 weeks of buyer efforts.

The chart above shows Apple’s performance in comparison with its competitors. As seen above, Apple has given a return of almost 11% in a year, which is over twice that of HP, but has underperformed in comparison to the broader market. Moreover, Google and Dell have given significantly greater returns than Apple in a year.

Fundamentally, Apple’s business saw some growth in its latest quarter. The company’s revenues grew 2% to $119.6 billion as its services revenues hit an all-time high of $23.2 billion! Its gross earnings improved 9% YoY while its gross margin grew to 45.9%. Operating Income of the company grew 12% while its net income grew 13% to $33.9 billion. EPS grew more than analysts expected to $2.19 per share.

What’s the future outlook??

Apple currently faces several headwinds. The company is currently facing two major lawsuits: one from the EU and another from the US DOJ. Considering that this is not the first such case on Apple, these lawsuits could significantly damage the company’s reputation and brand value. Moroever, the company is facing poor demand in China, its largest market! Cooling demand was also the reason Apple was downgraded in January 2024  as the Chinese government is currently reducing its reliance on American tech. Apple’s sales in the country fell by 10% in 2023 while 2024 was off even worse with iPhone sales falling 30% in the first week due to greater demand for home-grown brand Huawei!

Technically, Apple's stock appears to be in a downtrend. After the stock hit its resistance at $196.31, the stock has seen sharp declines. It has been making lower highs and lower lows consistently as multiple adverse news have prompted the stock to decline. However, the stock recently took support at $170.83, which has historically proven to be an important level. As such, the stock is expected to respect the level and remain above it. However, the stock might not be able to break its immediate resistance at $180.93 as the impending lawsuits and short-term demand constraints are expected to weigh heavily on investor sentiment. The company's upcoming results in the later half of April for Q1CY24 could bring about a definite change, for better or worse.

However, the company's macro headwinds may not last forever. According to reports, the global smartphone market could see a 4% YoY growth in 2024. Apple, with a global market share of around 20.1%, has great quality products and a healthy brand image, which would help it benefit greatly from the growing smartphone demand. Moreover, Apple’s new Vision Pro has outperformed market expectations. Initial projections of 150,000-200,000 were inaccurate as actual demand for the product has gone beyond 200,000 and the company has improved its production to quickly meet its orders. Furthermore, Apple is reportedly making drastic new changes in its upcoming model iPhone 16, including a revamped design!

Thus, due to the latest lawsuits, declining demand in China, and technical factors, Apple could be looking at a range-bound movement in the short-term, but with its robust fundamentals and brand value, the company has bright long-term prospects.