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Will Apple collapse 30% lower after shocking analyst downgrade?

July 18, 2019 10:07

Slowing iPhone sales, expected production cuts, uncertain US-China trade relations - these are just a few reasons why one analyst has shocked the market and downgraded Apple stock to a 'sell' rating. It's no easy feat to buck the Wall Street trend as Apple shares have soared nearly 50% higher since the beginning of the year before topping out at the $215 price level. The key question now is whether or not this analyst's view has any merit. If it does, the picture could get ugly, fast.

Trading Apple Share CFD

In this article, we explore the issues facing Apple right now, what could be next for its stock price and the possible trading opportunities around - what could be - a huge upset for Wall Street. Let's get started!

Apple's Downgrade: The facts

Jun Zhang of Rosenblatt Securities issued a note to clients stating that his firm believes Apple reduced the iPhone XR production for the third quarter due to weak sales in the second quarter. On top of that, the firm also believes that sales from other products such as the HomePod, AirPod and iWatch might not be strong enough to boost Apple's overall revenue figures, portraying a fairly dim outlook for Apple investors.

However, Apple investors will be focusing on the revenue from services such as Apple News, Apple Music and Apple TV as these have been marked as areas that could provide significant growth amid the backdrop of slowing iPhone sales. However, according to Zhang his firm also believes these services will come under pressure as well.

On the day the client note was released, 8 July, shares in Apple ended down 2%. Over the next several days the stock recovered somewhat. However, if Rosenblatt's downgrade does work out, it is a long way to go to their price target of $150. In fact from the day of the release that makes for a near 30% drop in Apple's share price. So what do the technical charts say? Let's take a look!

How to Trade Apple Shares

With Admiral Markets you are able to speculate on Apple's share price by using a product called CFDs, or Contracts for Difference. Essentially, this enables traders to go long and short on a security.

Below is the long-term monthly chart of Apple's share price, taken from the Admiral Markets MetaTrader 5 Web Trader platform:

Source: Admiral Markets MT5 Web Trader, AAPL, Monthly - Data range: from July 1, 2006, to July 17, 2019, accessed on July 17, 2019, at 3:28 pm BST. - Please note: Past performance is not a reliable indicator of future results.

In the above price chart, it is clear to see the long-term uptrend. However, the recent sell-off in 2018 has seen Apple's share price struggle to get back to its all-time high price level of $233.42 made in October 2018. As the longer-term trend is up but recent price action mixed let's go to the lower timeframes to try and find more clarity.

Source: Admiral Markets MT5 Web Trader, AAPL, Daily - Data range: from March 15, 2018, to July 17, 2019, accessed on July 17, 2019, at 3:35 pm BST. - Please note: Past performance is not a reliable indicator of future results.

On the daily chart of Apple's share price, it is currently, at the time of writing, struggling to break higher beyond the descending red resistance line. Some traders use these levels of support and resistance just for analysis and some use them as areas to enter trades and some use them for targeting. However, what happens here will be important for the future price direction of Apple's share price.

Will buyers break through this area of resistance or will sellers take control and push the stock price lower, as Rosenblatt Securities believes so. It's important to remember that there will be other investment firms who have a bullish outlook on Apple's share price. Traders can use price action patterns to help identify whether buyers or sellers will take control of the market.

  • If sellers manage to take control it's a long way down towards the $150 analyst price target level.
  • If buyers manage to take control it's a long way up towards the all-time high level of $233.42.

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INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1.This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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4.The Analysis is prepared by an independent analyst Jitan Solanki, Freelance Contributor (hereinafter "Author") based on personal estimations.

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