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Goldman Sachs slashes price target for Apple! Could it crash 27% lower?

September 24, 2019 21:40

One of the world's most recognised investment banks, Goldman Sachs, has slashed its price target for Apple shares to just $165 a share. The bank now has the lowest rating on the street for the stock, indicating the possibility of a near 30% crash lower.

Trading Apple Shares

In this article, we discuss the rationale behind the Goldman Sachs price cut and what could lie ahead for Apple shares. Let's get started!

The Apple Cut: Accounting and Apple TV Plus

One of the reasons Goldman Sachs slashed its price target for Apple shares, is down to the company's accounting method for the technology company's new service Apple TV Plus. Early on in September, Apple announced that any new hardware sales of the iPhone, iPad, Mac and Apple TV products would come with a free one-year trial of the Apple TV Plus service which is set to launch in November for 5 USD per month.

The accounting method for the Apple TV Plus trial would essentially bundle the year-long period with the product at the time of purchase. According to some analysts, this method will hurt iPhone margins moving forward as the lower average selling price would not be compensated by a discount to the cost of goods sold.

In a note to clients, Goldman Sachs analyst Rod Hall wrote: "Effectively, Apple's method of accounting moves revenue from hardware to Services even though customers do not perceive themselves to be paying for TV+. Though this might appear convenient for Apple's services revenue line it is equally inconvenient for both apparent hardware ASPs and margins in high sales quarters like the upcoming FQ1′20 to December."

Shares in Apple immediately dropped as much as 2.6% after the note was released. However, Apple responded to the note disputing Goldman Sachs' analysis stating that they "do not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results." Shares moved higher after the announcement but still ended the day lower, as shown in the Apple share price chart below:

Source: Admiral Markets MetaTrader 5, AAPL, Daily - Data range: from 18 April, 2018 to 24 Sept 2019, accessed on 24 Sept 2019 at 8:05 pm BST - Please note: Past performance is not a reliable indicator of future results.

How to Trade Apple (AAPL)

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 an instrument.

Below is the long-term weekly chart of Apple's share price:

Source: Admiral Markets MetaTrader 5, AAPL, Weekly - Data range: from 23 July 2006 to 24 Sept 2019, accessed on 24 Sept 2019 at 8:08 pm BST - Please note: Past performance is not a reliable indicator of future results.

The long-term price chart of Apple clearly shows a rising share price. However, there have been periods of decline with the biggest drop in share price from October 2018 to January 2019. While short-term traders may look to trade any possible weakness, longer-term traders may choose to wait to buy into any weakness.

The strategy you choose comes down to your preferred style of trading and strategy. You can learn more about different types of trading strategies in our 'Trading Strategies for 2019' guide.

For now, let's look at Apple's price chart on a shorter-term timescale such as the daily chart.

Source: Admiral Markets MetaTrader 5, AAPL, Daily - Data range: from 18 April 2018 to 24 Sept 2019, accessed on 24 Sept 2019 at 8:19 pm BST - Please note: Past performance is not a reliable indicator of future results.

It's clear to see that the call from Goldman Sachs is a big one. The $165 price target signifies an approximate 27% drop from the high of 13 September - the day the note was released. Also, there may not be that many people looking to trade against any future growth in Apple. Some traders may wait for more clarity on the US-China trade tariff. If a deal can be reached, a global stock market rally could be likely. However, there's currently no end in sight.

In this instance, traders can use technical analysis to aid in their decision making. Tools such as support and resistance levels can prove to be quite useful as they often give clues on where buyers and sellers may transact.

For example, in the chart below the blue diagonal line is known as a trend line. In effect, this trend line has helped keep buyers in the market. Traders will use this line to remain long or continue to look for long positions, as long as price can stay above it.

Source: Admiral Markets MetaTrader 5, AAPL, Daily - Data range: from 18 April 2018 to 24 Sept 2019, accessed on 24 Sept 2019 at 8:19 pm BST - Please note: Past performance is not a reliable indicator of future results.

If price breaks below the trend line it's a sign that no buyers are willing to step into the market, meaning sellers could take control. A break of this trend line may just get Apple's share price towards the Goldman Sachs target but it is still a long way to go - how will you be trading it?

One way is with MetaTrader 5 as you can trade on multiple asset classes, and access superior charting capabilities, free real-time market data & analysis and much, much more! To download MetaTrader 5 now, click the banner below and receive it for FREE!

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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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