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Apple Falling From Market Tree; Here's Why ...

Tuesday, August 4, 2015
Money and Markets
You can also access this issue on our website.
Apple Falling From the Market Tree; Here's Why ...
Market Roundup
Dow -47.51 to 17,550.69
S&P -4.72 to 2,093.32
NASDAQ -9.83 to 5,105.55
10-YR Yield +0.061 to 2.211%
Gold -$1.80 to $1,087.60
Oil +$0.64 to $45.81

By Mike Larson

Apple (AAPL) is falling from the market tree.

The benchmark technology stock cratered through its 200-day moving average yesterday. Then it fell even further today to as low as $113.25, making it 10 losing sessions out of the last 11.

Not only that, but Apple is now 15% off its intraday high in April around $134.50. All of that adds up to make this the stock’s first significant technical breakdown since late 2012.

Apple still sports a market capitalization of $653 billion. It still has almost universal adulation on Wall Street (39 “buy” ratings vs. only two “sells”, according to Bloomberg). And it still dominates the media and market conversation, particularly when it releases a new whiz-bang product, service, or smartphone.

So what’s going on? And how far could Apple drop?

One key problem is disappointment over the Apple Watch. I said right from the outset I had no intention of buying one, and that I thought it was an overpriced, unnecessary accessory.

Apple hasn’t said much about sales trends since then. But third-party researchers say the product isn’t seeing anywhere near the demand expected by bullish observers. Analysts estimate Apple sold only 1.5 million to 3 million watches in the fiscal third quarter, well below forecasts of as much as 5 million.

Concerned about your Apple shares?

Another threat is China. Apple gets around 25% to 30% of its sales in China, depending on the quarter. So fears about China’s market meltdown and weakness in the broader economy there are weighing on Apple shares.

It’s also worth pointing out that while Apple beat earnings estimates in the just-reported quarter, with profit of $1.85 a share versus forecasts for $1.81 a share, that was the smallest “beat” in two. That loss of earnings momentum is another yellow flag.

Analysts weren’t exactly wowed by smartphone sales of 47.5 million in the quarter, either. They were generally looking for a number closer to 50 million. iPad tablet sales also remained weak, showing how that business is languishing.

Does all of this mean Apple shares will become applesauce? No, not necessarily. The stock has still been a fantastic long-term performer, and investors won’t sour on it overnight.

But the technical breakdown of a major market bellwether is definitely gaining notice on Wall Street. What’s more, it’s yet another worm winding its way through a market that’s getting increasingly full of worrisome holes.

“The technical breakdown of a major market bellwether is definitely gaining notice on Wall Street.”

So if you haven’t already taken some profits off the table, or lightened up by jettisoning a few losers, now might be a good time to act!

Now, I’d like to hear from you. Do you own Apple, and are you worried about its breakdown? Or is this just another in a long line of buying opportunities?

Do you think the Watch, the iPhone, and other products are losing popularity and/or market acceptance? Or will sales heading into the key back to school and holiday shopping seasons dispel any concerns? Let me know over at the Money and Markets website.

Our Readers Speak

Is President Obama’s climate plan the right thing to do for our children and grandchildren, not to mention the planet as a whole? Or is it an expensive boondoggle that will drive power bills up while doing little to reduce pollution? That was the major issue being kicked around at the website.

Reader Ron S. said he doesn’t buy the argument that additional EPA restrictions will result in tangible benefits. His take: “The President lied to the American public with the savings associated with Obamacare and he is lying again about the health care benefits associated with these strict emission controls. He is just pushing his electric agenda and no one can seem to stop him. He is just going to make everyone pay more for their electricity.”

Reader Philip B. came down on the same side of the debate, saying: “Obama is once again trying to fix a climate change issue that many experts do not believe exists. The result will lead to higher utility bills that many ordinary people will not be able to afford to pay. Wind farms and solar energy methods of generating electricity are not able to fill the power gap that coal now very efficiently provides.”

Finally, Reader Brent said: “Without governmental (taxpayer) and ratepayer subsidies, wind and solar make little sense for the average ratepayer. The enormous costs, the unpredictable supply, and the short panel life make it doubtful anyone but the equipment manufacturers and installers will come out ahead.

“It sounds very politically correct and responsible, but it is a colossal waste of public funds to continue propping up such ventures. If they (solar and wind) are just grand ideas, they should be able to self-sustain rather than relying on bureaucratic dicta and money subsidies.”

On the other hand, Reader Joe K. said he thinks being more environmentally conscious is the right policy. His view: “Just thinking of your almighty income, or could you consider the generations to come? Doesn’t sound like you critics can see beyond your wallets.

“My family invested in solar hot water years ago, and have just built our ‘downsized’ new home … We just believe it is the right thing to do so the next generations can enjoy the benefits of clean air (and hopefully water).”

Reader Melissa P. added: “It’s past time to realize that investment in fossil fuels is a fool’s errand with devastating consequences. Stop riding the down-alator and start seriously investing in renewables. Your grandchildren will thank you for a world that hasn’t been completely ruined by exploitation.”

No doubt the debate over renewable vs. fossil fuels can get heated. I personally believe investing in and studying cleaner sources of power makes sense. But as some of you noted, it has to be economically competitive on some level. That’s a tall order with “bridge” fuels like natural gas so abundant, cheap, and at least somewhat cleaner than alternatives like coal.

That said, a whole lot of money, publicity, and technical expertise is going to be directed at the alternative energy industry with these new regulations. So as an investor, you’d be wise to look into ways to profit – as I am.

Any other ground I didn’t cover here? Then be sure to let me hear about it at the website.

Other Developments of the Day

BulletThe ink wasn’t even dry on President Obama’s climate change plan before key lawyers and lobbyists started gearing up to fight it. And yesterday, a group of coal representatives and attorneys general from coal-mining states announced plans to fight the climate regulations tooth and nail. We’ll have to see if this program ends up before the Supreme Court eventually just like Obamacare.

BulletWhat the heck is going on with China’s markets? That’s what the nation’s premier Li Keqiang apparently wanted to know recently, according to the Wall Street Journal. He reportedly lambasted officials from the People’s Bank of China, and the leading banking and securities regulatory agencies for their disjointed and incompetent response to the recent market turmoil.

BulletThe biotech M&A action shows no sign of letting up, with Shire Plc (SHPG) launching a $30 billion offer for Baxalta (BXLT). Shire’s bid works out to just over $45, a 36% premium to where Baxalta closed yesterday.

Shire decided to go hostile after Baxalta rejected private overtures. A transaction would create a behemoth in the treatment of rare diseases, conditions that impact fewer than 200,000 people in the U.S.

BulletThe Securities and Exchange Commission is investigating the bond giant Pimco for its valuation, disclosure, and compliance practices, according to reports. The area of focus is the firm’s popular Pimco Total Return Active Exchange Traded Fund (BOND).

What do you think about the resistance to Obama’s climate plan? Is it justified or misguided? How about the latest round of biotech M&A? Are you making money from this hot sector? Let me know your thoughts on those or other stories over at the website.

Until next time,

Mike Larson

Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

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