This week's technology focus will be on Apple (AAPL). Before moving on to Apple, let's recap Research in Motion's (RIMM) earnings miss. Unsurprisingly Research in Motion missed expectations and the stock plummeted as much as 24% on four times the average three month volume. This sell off should continue into next week as investors have the weekend to comb through the earnings report and see the future of the company may be shrouded in darkness. As expected, investors and traders were watching this report very closely for any signs of strength or weakness in the economy. I was surprised to see other consumer services and smart phone stocks avoid a slight dip; perhaps it will come this week? Nevertheless, this earnings miss may be a sign the overall smart phone and tablet market is becoming drenched with products and competitors may see a slow down as well.
As mentioned above this week's focus should be on Apple. While the stock market continues to tread through choppy waters, Apple's stock price has nearly, and quietly, returned to its 52 week high achieved after the June earnings report. After the market closed Friday the stock sat above the 400 level; which is 1% below the 52 week high. This makes Apple one of the best performing, if not the best, technology stocks on the market. Of course this should not be surprising as Apple has been one of the market bellwethers for nearly a decade and the stock has historically held up well amidst market and economic weakness.
It goes without saying Apple has outperformed the market recently as most technology stocks, and stocks in general, are well off their 52 week highs. Because of this, many are interested in opening new long positions in Apple. Contrarily I believe the stock is ready for a breather this week regardless of the overall market environment. While I would not be surprised to see the stock head above the 52 week high within the first 2-3 trading sessions, I am expecting the share price to dip down to the 380- 385 level. Please remember I am expecting Apple to continue to move upwards in the long term, but the short term I am expecting a dip as traders and investors take small profits.
Apple's stock is currently riding a five day positive run. This has only happened six times, including the current streak, in the past 12 months. Also, four of these streaks can be directly correlated to earnings reports. Therefore only twice has the stock seen at least five consecutive positive trading sessions in the past year. Interestingly the last streak that cannot be attributed to earnings ended September 24, 2010. The similarities in dates is something investors should remember in the coming years. Nevertheless investors should keep in mind the longest positive streak Apple's stock has seen in the past year was 10 days; which ended October 18, 2010. This was accompanied by strong earnings and strong guidance expectations.
(Apple's chart over the past year with five or more consecutive positive trading days within ellipses.) Again, while I expect Apple's share price to retreat, the stock is still a long term buy and hold. Since the company has not shown signs of weakness I am not expecting the stock to face any kind of sustained downward pressure. Even though the overall stock market is volatile and could fall through any day, Apple's stock should slide quite a bit less than other technology stocks if this does indeed happen. This can be proven by looking at the chart over the past 4-8 weeks. Also, it is important to keep in mind Apple is a hotbed for good news that could lead to share price pops. Another reason Apple is a good long term buy and hold is because Tim Cook is now CEO; which could possibly lead to dividends, splits, or share buybacks in the future.
Under the current market situation I would not recommend loading up on Apple right now because there may in fact be a serious downward move (40-50 points) sometime in the next 4 weeks; which would make the stock almost a must buy leading up to the October earnings report. Also, before a pre earnings run up can begin the stock will need to take a slight break. This breather may come this upcoming week or the following week. With that said, if the Federal Open Market Committee does not present pleasant news, we may see a deeper slide than expected.
Other Important Technology Action
Two other important technology events this week will come from Adobe (ADBE) and Oracle's (ORCL) earnings on Tuesday, September 20th. Also on Wednesday Red Hat (RHT) will give a further look at application software. This means investors of Microsoft (MSFT) and IBM (IBM) will be watching closely this week as well.
Last quarter Oracle missed expectations and the stock has been unable to recover. Much of this has been due to the increase in market volatility. Nevertheless the stock is about 7% off where it was prior to the June 23rd earnings report. Again, this should not be a surprise as many stocks are below where they were three months ago. Keep in mind Apple's stock is within 1% of reaching the 52 week high from three months ago. Also it is important to keep in mind Oracle's stock is nearly in the middle of the 52 week high and 52 week low. This will add pressure on the earnings report because the stock can easily bounce one way or the other based upon the guidance given by the company.
On the other hand Red Hat is about 16% below the 52 week high and about 30% above the 52 week low we saw on August 18th. Red Hat has been rallying over the past few weeks and strong earnings followed by positive guidance could give the stock the fuel to run. One variable investors have to watch out for is Oracle and Adobe. Since Oracle and Adobe report the day before, Red Hat's stock could be affected based upon what Oracle and Adobe report. Adobe's stock is only 12.5% above the 52 week low from August 18th. The company is expected to report an EPS of 54 cents after the close on Tuesday. Any negative news will lead to a new 52 week low for Adobe as the stock is barely holding on after a rumor that Microsoft's Internet Explorer 10 for Windows 8 for tablets, called Metro, will not have Adobe Flash plug in capabilities.
This week is inevitably going to be a wild ride for the stock market with several macroeconomic events taking place this past weekend and during the week. This could be compounded by Apple's stock making a downward move at some point along with Oracle, Adobe, and Red Hat's earnings. While Apple's move will be gradual, the application software industry may see a sharp surge or decrease based upon the three earnings reports in the middle of the week. This should trickle down to the broader technology sector because shipments and future orders can be directly correlated to demand for application software. And if demand is low we should expect lower guidance and earnings from the usual technology winners.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
