Did Apple Blow the Lid Off Earnings ?

It sure looks that way, but shortly after Apple issued their earnings statement an analyst informed their clients that a significant part Apple’s increased revenues came from a “favorable tax rate treatment”.

Well, this sure adds some complexity now to the earnings. Are we looking at revenues reported in an “apple vs. apple” (no pun intended) comparison, or something much different?

There are more questions than answers at this time, but I’m looking into this.




Apple (AAPL) Chart Analysis

Let’s take a look at Apple (AAPL). Of course yesterday Steve Jobs unveiled the latest gadget and this one is called the iPad. During the day yesterday the stock reacted positive when the price point of the new device was announced, but, will it be a new hit?

Not according to the stock performance today. Apple lost a little over 4% today, even with the new product being touted by some in the media as the greatest invention since sex. My impression is somewhat less enthusiastic, but that is neither here nor there. This is a chart analysis of Apple (symbol: AAPL).

The chart that accompanies this article is annotated with numbers, each number points to a specific point on the chart where a significant event took place. Let’s examine these points.

(The chart shown is a 2 year chart, daily scale).

Point 1 – Apple was trading within a channel (blue lines) since May 2009. In early DecemberApple AAPL Chart Analysis Apple dropped below the channel. This was the first significant event as the break from the channel pattern signaled a shift in the dynamics of Apple’s stock.

Point 2 – Apple’s share price dropped to a major support level (horizontal black line) which was $189.50. That support level held Apple’s share price from dropping any further.

Point 3 – Apple moved up off the support level and re-tested the channel once again. This time the channel acted as resistance and the share price was held from going higher at this resistance level. This is a classic technical pattern of what was a support level (point 1) turning into resistance and that resistance level holding.

Point 4 – The major trend line (diagonal red line) was broken and Apple’s share price dropped below that trend line. This is another significant technical event for the stock price of Apple.

From a chart analysis point of view only, it now appears that Apple will be trading in a range between $189.50 and the trend line (red). Currently that would give us a trading range of approximately $30 (189.50 to $220).

It is what happens when Apple makes a move either above or below these price points that will give us a clue of where the Apple stock price will go over the months to come. Should Apple break below the strong $189.50 support level, then it is likely that Apple will see a rapid drop to around $175. At which time a new set of support and resistance points would have to be evaluated for where it goes from there.

If Apple breaks above the trend line (red), then it will run right back into resistance again at the previous channel (blue lines). At that point the share price will be caught in an even narrower range between support and resistance.

At this point in time, the chart tells me that Apple is likely to, at a minimum, re-test the major support level at $189.50. Short term traders may look at that support level for an entry (long) to play a potential bounce, albeit still contained in the trading range of 189 to 220. But, be very careful, should Apple fall below the major support (horizontal black line) then you may very well see lower prices for Apple ahead.

disclosure: no position in Apple (long or short).




Apple To Get A Helping Accounting Hand For Even Better Results

Apple, the famed Iphone and Ipod maker has been on a rip ever since the apparition of the Iphone 3GS, rising to never-expected levels in a recession. Now, it has received a great helping hand from the FASB, the accounting institution of the US, which allowed it basically, to book as actual the revenue to be received from an Iphone subscription upfront.

Until now, Apple distributed the revenue from a subscription over 8 quarters (the typical duration of an Iphone subscription), instead of accounting for it upfront (which makes sense if  you think that the funds will come in over eight quarters). Now, under this change of accounting rules, Apple could recognize up to 95 % of the value of the Iphone upfront. Not indifferently, the Cuppertino firm lobbied hard for this rule, even if in accounting principles, it does not make sense in my view, in counting in your income revenues that have still to be perceived.

The estimation of MS’ analyst, Kathryn Huberty is that this could boost further the stock price of Apple, based on the recognition of a lower P/E than originally expected. What does this teach us? Never short a “cult” stock based on TA! There will always be ways for it to surprise you on fundamentals.

The Financial Accounting Standards Board (FASB), the organization empowered by the SEC to set accounting standards in the United States, is set to vote Wednesday, Sept. 23, on rule changes that could significantly affect Apple’s (AAPL) reported earnings and stock price, according to a report to clients issued Tuesday by Morgan Stanley’s Kathryn Huberty.

The new rules — for which Apple lobbied heavily — would put an end to iPhone subscription accounting, a balance-sheet sleight of hand that has confused analysts and investors from the day the iPhone hit the market.

Although the changes won’t affect Apple’s cash flow, Huberty sees short-term benefits “from a technical and sentiment perspective” including (in her words):

  1. Inflows from quant driven strategies and retail investors as AAPL shares will screen cheaper on “New” GAAP consensus estimates vs. “Current” GAAP (19x vs. 23x);
  2. Likelihood of larger earnings surprises given analysts have consistently underestimated iPhone gross margins which have ranged between 50-60% over the last year.

The bottom line, she writes, is that the new rules allow Apple to recognize the majority of the revenue and direct costs of an iPhone upfront (she estimates 95%), shifting value from the balance sheet to the income statement.

Although the rule change will affect many technology companies, Huberty points out, it is particularly relevant for Apple since the iPhone, which is subject to current subscription accounting rules, represents approximately 33% of its revenue.

The rule changes, if ratified, wouldn’t become mandatory until Dec. 2011. But Huberty believes that Apple will begin implementing them in their first fiscal quarter of 2010, which begins next week.

A Mad Money report on the proposed rule changes last Tuesday sparked a rally that sent Apple shares up nearly 10.8 points (6.1%) to a 15-month high of $186.79 before it ran out of steam. The stock closed Monday at 184.02.

More on this topic (What's this?)
Did Apple stumble and create the Iphone killer?
Dividends Value Mobile
Read more on Apple, IPhone at Wikinvest

Apple’s Exploding Iphones: The EU “Invites” Apple to Provide It With Information

Interesting development in the case of the exploding Iphones and Ipods of Apple (AAPL), which we considered in a previous post.

The European Union is in charge of many aspects of product safety in Europe and according to the French economic daily Les Echos, the European Commission (the quasi-executive organ of the EU) invited Apple to provide information on the case of a French teenager who was wounded in the eye by the explosion of his Iphone’s screen.

Similar details were requested from France and the UK where a number of incidents were reported.

Apple stays mum for now. “We invited Apple to give us information on the French incident, but for now we did not have any answer” regretted the spokesperson for the Industry and Companies division of the European Commission.

No wonder about that, considering how Apple is trying to shut down any information about the dangerosity of its products and considering the huge cash inflow it is getting thanks to this overpriced product:

Apple blew past all but the most bullish predictions in the fiscal third quarter, driven by sales of 5.2m iPhones, more than seven times the volume of a year earlier.

The sales figure is all the more remarkable because the period ending June 27 took in the introduction of the Apple 3GS and the halving of prices on the older 3G models, to $99, with both occurring in the last month of the quarter.

The surge shows how Apple has continued to gain share in the profitable market for internet-capable telephones, which is maintaining overall, albeit at a slower rate.

According to the spokesperson, the incidents were not yet notified to Rapex, the European alert mechanism for dangerous products.

In fact, in the wake of these incidents, Apple published a note on “environmental temperatures acceptable for the original iPhone“:

To ensure iPhone maintains a safe temperature, use it in a place where the temperature is always between 0° and 35° C (32° to 95° F).  Low or high-temperature conditions might temporarily shorten battery life or cause iPhone to temporarily stop working properly.

When not in use, store iPhone in a place where the temperature is between -20º and 45º C (-4º to 113º F). Don’t leave iPhone in your car, because temperatures in parked cars can exceed this range.
When you’re using iPhone or charging the battery, it is normal for iPhone to get warm. The exterior of iPhone functions as a cooling surface that transfers heat from inside the unit to the cooler air outside.

Previous incidents involving overheating seem linked to a faulty Lithium-Ion battery conception.

If the incidents are shown to be really widespread, this could lead to huge financial consequences for the Cuppertino company. The real question now is who is going to “think different” about Apple and realize they are selling overpriced junk?

Not English-speaking medias, in any case, as the news was widely absent on Saturday morning from the main financial medias that are the Financial Times and the WSJ.

More on this topic (What's this?) Read more on Apple, European Union, IPhone at Wikinvest

Apple (AAPL) Chart Analysis

When looking for stocks that offer the best risk to reward (long or short) a trader will take into account many things.

First is the broad market. And in a bear market rally all price advances have to be put into question for sustainability. When a bear market rally appears to be about to make another direction change (as viewed in the major indices) then stocks that are closing in on significant price resistance levels are candidates for trades. And evidence is building of an imminent move back down in the broader market.

In this case I chose to go ‘short’ on Apple (AAPL).

The following charts will detail my logic for having entered into a short position in this stock.

The first chart is the all important ‘volume must confirm price‘. When you spot prices advancing at the same time volume is declining, then a trader must be suspicious of the price advancement. Upward price moves with declining volume must always be viewed as a ‘bear market rally’. In other words, less volume is supporting the price as it goes higher making for an unstable rise.

Next on this same chart is a gray rectangle. This represents a region that has significant price/volume levels. At each point where price has interacted with this price level (gray rectangle) the amount of shares (volume) that was traded at that price level is high. This reinforces the importance of the price level, and in this case resistance.

4 18 2009 12 44 10 am 300x246 Apple (AAPL) Chart Analysis

The next chart is a Fibonacci price level analysis applied on a multi year chart. Here again we see another form of resistance.

4 18 2009 1 04 04 am 300x240 Apple (AAPL) Chart Analysis

Up next is another Fibonacci study, this time it is a Fibonacci Fan sequence. While not one of my primary technical tools, it still reveals a pattern that has shown to be repetitive. Observe each fan line where it meets price. A significant amount of price reaction at each Fibonacci level is clearly visable in this chart.

4 18 2009 1 07 04 am 300x247 Apple (AAPL) Chart Analysis

And yet one more Fibonacci study. This one is a Fibonacci time sequence. Again, not one of my primary analysis tools but when there is a corelation to price/trends it has to be respected.

4 18 2009 1 10 57 am 300x246 Apple (AAPL) Chart Analysis

And the last chart shows a trend line spanning many years. While this is ‘not’ a primary trend, it is a price trend line nonetheless and it also reveals a potential price interaction level.

4 18 2009 12 57 29 am 300x246 Apple (AAPL) Chart Analysis

So there you have it. The primary factor in my decision to short Apple was the first chart, the remaining charts just give some added confirmation to the risk/reward ‘setup’ being in my favor at this time.

While no trade is ever perfect, or will go as planned 100% of the time, the charts tell me that there is an overwhelming amount of evidence that being ‘short’ offers the better risk/reward trade at this price level.

More on this topic (What's this?)
Is Apple the Perfect Growth Stock?
Three Green iPad Stocks
Read more on Apple at Wikinvest

Apple (AAPL) Reports Record Quarter – Market Summary

Apple (AAPL) reported this afternoon that their earnings for the quarter that just ended beat Wall Street estimates by a large margin. I’m going to do some ‘digging’ into the numbers reported by Apple in the near future to get at the heart of their numbers.

Unemployment is rising by the day, people are losing their homes more and more to foreclosure, retail sales are down by record amounts, retail establishments are closing their doors, and Apple has their best quarter ever? Wow, I guess every man, woman, and child is spending every penny left in the piggy bank on iPods even as they lose their home and job.

The earnings from Apple create a disturbing scenario, we have Apple at one extreme of the retail spectrum, and the rest of retail at the other end. On paper it looks like an over stretched rubber band. If I were to place bets here I would put my money on Apple reaching an over extended quarter to only see retrenchment in quarters to come.

I know, Apple lovers out there will crucify me nine ways to Sunday. But, I keep my eyes open and don’t see how this earnings growth can be maintained in the grand scheme of the economy with the rest of the retail sector continuing to deteriorate.

[Read more...]

More on this topic (What's this?)
Three Green iPad Stocks
Read more on Apple at Wikinvest

Stock Market Commentary – Time for me to get on the Soap Box!

fotolia 7751907 xs 300x300 Stock Market Commentary   Time for me to get on the Soap Box! I need to get on my soap box tonight. So much has happened today that I need to speak out here.

I’m not sure where to begin. First we received the Government data on retail sales and it was just as bad as I expected. But, it was a shock for the market because the data was below the ‘consensus expectations’. I have written for numerous months that retail sales were going to deteriorate and now we are getting the proof of that.

DECEMBER ADVANCE RETAIL SALES: -2.7% V -1.2%E; LESS AUTOS: -3.1% V -1.4%E
- Prior Advance Retail Sales revised from -1.8% to -2.1%
- Prior Less Autos revised from -1.6% to -2.5%

And at the same time came news of another retailer forced into bankruptcy. Gottschalks, a company with a 104 year history had succumbed to the economy and was forced into bankruptcy.

Next came the huge news that Nortel Networks (NT) filed for bankruptcy protection. Nortel was just a decade ago one of the largest companies in the technology sector. Today they are in bankruptcy and their stock has been wiped off the map.

[Read more...]

More on this topic (What's this?) Read more on Apple at Wikinvest

Apple (AAPL) – CEO Steve Jobs Announces ‘Leave of Absence’

Shares of Apple (AAPL) were halted for nearly 60 minutes following an announcement that CEO Steve Jobs will be taking a medical leave of absence.

JOBS NOTES HEALTH ISSUES MORE COMPLEX THAN THOUGHT, WILL TAKE MEDICAL LEAVE OF ABSENCE UNTIL JUNE
—Tim Cook, COO, will take over until Jobs returns


— Jobs’ Memo: ” I am sure all of you saw my letter last week sharing something very personal with the Apple community. Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.
In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June. I have asked Tim Cook to be responsible for Apple”s day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our board of directors fully supports this plan.”

I’ll provide additional commentary on this news in my wrap up tonight.

More on this topic (What's this?)
Steve Jobs Health Drags Down Apple
The men who could replace Steve Jobs
The End of Steve Jobs ™
Read more on Apple, Steve Jobs at Wikinvest