Apple's (AAPL) iPhone 5 sales have not been able to keep the pace with projections and estimates and as a result Apple's share price has fallen 2.5% and closed just below the technically significant level of $675 today. Initial sales data revealed that the company sold substantially lower quantity of iPhone 5. Many longtime Apple watchers expected that the company will sell as many as eight to ten million iPhone 5 by the end of first week. According to reports Apple was able to sell merely five million units of iPhone 5. (Click here for sales report)
Apple reported debut weekend sales for the iPhone 5 that fell short of some analysts' estimates after supply constraints delayed shipments. Shares slipped amid concern that supply shortfalls may impede the company from harnessing the iPhone 5 to outpace rivals.
Apple stock, which touched $705.07 mark a few days ago, was down about $30, or 4.5% from the high. Some people are wondering as to whether Apple is past its prime, and if there is more room for Apple to grow. Samsung (SSNLF.PK) has become a tough opponent for Apple, and many of Samsung's products seem to have as many fans if not more than Apple's.
Options Data Signaling Lower Prices
The options market is signaling investors to buy Apple's stock at a lower price. By selling bearish put options and letting investors who are buying those puts hedge their positions in the stock, it is possible to collect hefty options premiums just for agreeing to buy Apple's stock at a lower price. If Apple's stock price declines below the put strike price, investors are obligated to buy the stock.
Normally, the greed premium inflates Apple's call prices as investors usually scramble to buy the stock or trade its upward momentum. But now, fear is driving stock trading, and options prices, as investors react to initial Apple iPhone 5 sales data. Fear led to a rise in Apple's implied volatility. Anyone who sells Apple's October $675 put can collect $19.74, and essentially get paid for agreeing to buy the stock if the price dips below $675. If the stock price stays above $675, investors keep the $19.74 premium.
The RSI is hovering around the 60 mark after touching 70 last week. It can decline up to the 50 mark. The MACD is also trending lower for the extreme short-term. There is a strong possibility that the stock will take support just below the 20-Day SMA, which is currently located near $680. Option traders are also betting on the 20-Day SMA mark. If the stock price doesn't recover above the $675 level in a day or two, the next support is near the previous high of $640, which surprisingly coincides with the 50-Day SMA. We don't expect $640 level to be breached in the near-term. In fact the $640 level should lend rock solid support to the stock.
Fundamentally Apple is a Buy
Two months ago, I predicted in an article on SA that a short-term up-move in the stock was imminent.
The share price of Apple has been consolidating around the $600 mark for some time and we expect a short term up-move after the results. It would be supported by Apple's upbeat guidance for the fourth quarter and a confirmation by the management that the company is surging ahead for enterprise development.
We believe Apple has silently made significant progress in the smartphone software market, and it will be certainly reflected in the company's Q3 earnings report. Moreover, the iPhone 5 is set to be a resounding success, and Apple's suppliers are upbeat about the opportunity that it presents.
Although some reviews of iPhone 5 dismissed it as having no significant improvement, its orders topped two million during the first 24 hours of its debut. iPhone 5′s screen grew to 4 inches from 3.5 inches for earlier models. It's also the thinnest and lightest cell phone model of the company.
Component shortages, including parts needed for the iPhone's new screen technology, caused the supply shortfalls, Shaw Wu, an analyst at Sterne Agee & Leach, wrote in a research report Monday. Apple could have sold as many as 2 million more handsets without those constraints, he said.
Given the supply challenges, many estimates were too high, Wu said. "We find it unfortunate that some analysts continue to publish irresponsible estimates without taking into account realistic demand trends and potential supply constraints," Wu said. "This is a classic case of near-term expectations getting out of touch with reality."
"Demand for iPhone 5 exceeds the initial supply and while the majority of pre-orders will be delivered to customers on September 21, many are scheduled to be delivered in October," the company said Monday. Despite the record high share price, we still believe Apple's shares would rise further and rate it as "buy" from the perspectives of both technical analysis and positive outlook of iPhone 5 sales.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.