Trading Desk: Hoping For An Apple Rebound

Apple Inc. (AAPL) has endured a difficult start to 2024. Its stock has significantly lagged behind the broader S&P 500 Index, experiencing its worst quarterly performance in over a decade. But there are several factors that suggest a potential rebound on the horizon.

The $165 price is a significant technical support point for Apple’s stock — if the price holds above this level, it could attract buyers and fuel a rebound.

Apple’s recent decline has proven lucrative for short sellers. As these traders look to lock in profits, they may need to purchase Apple to close their positions, driving up the stock price. And in comparison to other major tech firms, Apple’s performance could make it appear more attractively valued, potentially drawing in new investors.

Market analysts like Craig Johnson of Piper Sandler & Co. see limited downside risk for Apple from here, suggesting a range-bound period until the stock decisively breaks above its longer-term moving averages. Famed investor Nancy Tengler of Laffer Tengler Investments Inc highlights Apple’s strong business model and buyback plans as reasons for long-term optimism.

Apple’s recent struggles stem from declining sales in China, regulatory pressures on its App Store, and growing investor concerns about its overall outlook. These headwinds have contributed to the severe underperformance relative to the S&P 500.

Comparisons and the Tech Sector

The tech sector may be poised for a pullback. Stocks like Nvidia Corp. (NVDA), Meta Platforms Inc. (META), and Inc. (AMZN) could cool off after recent rallies, potentially triggering a rotation of funds back into quality names like Apple. Market strategists, such as Mark Newton of Fundstrat Global Advisors, will be closely monitoring Apple’s price action for signs of broad market weakness.

The so-called Magnificent Seven are the dominant juggernauts in the technology sector. The list’s composition mirrors the evolving leaders of the tech industry:

  • Alphabet (GOOG, GOOGL): Parent company of Google, the search engine giant, and involved in areas like cloud computing, advertising, and autonomous vehicles (Waymo).
  • Amazon (AMZN): The e-commerce titan, revolutionizing retail and dominating cloud computing through its AWS (Amazon Web Services) division.
  • Apple (AAPL): Maker of the iPhone, iPad, and Mac line of products, Apple is a design and innovation powerhouse with a loyal customer base.
  • Meta Platforms (META): Formerly Facebook, Meta is focused on social networking, virtual reality, and the emerging metaverse. 
  • Microsoft (MSFT): The software behemoth behind Windows, Office, and a growing cloud computing division (Azure).
  • Nvidia (NVDA): The leader in graphics processing units (GPUs), a crucial component for gaming, artificial intelligence, and high-performance computing.
  • Tesla (TSLA): The electric vehicle pioneer currently disrupting renewable energy.

Historical Significance of the Seven

These companies have a long history of shaping the technology landscape. Their products and services are ubiquitous and enjoy huge market shares, creating substantial network effects. 

They invest heavily in research and development, consistently driving technological breakthroughs across multiple fields. These companies also generally have robust balance sheets, strong cash flows, and command impressive profit margins. 

All in all, the Magnificent Seven have fundamentally disrupted and changed whole industries, influencing how we work, shop, communicate, and consume entertainment.

The suggestion to rotate within the Magnificent Seven emphasizes the dynamic nature of the tech sector. While these companies are titans, their dominance and growth rates can fluctuate. An investor may want to move holdings towards companies showing stronger momentum or those with better relative valuation at any given time.

This strategy highlights the need for balance and avoiding overconcentration in any individual stock or sector, even for these industry leaders. Diversification is crucial for managing risk, even within top-tier companies.

Focusing on Apple potentially taps into the concept of the “value rotation.” Sometimes, investors favor stable, reliable companies with strong perceived value over those focused purely on rapid growth. Apple’s massive size and established market position could make it attractive relative to some of its riskier tech peers during certain market cycles.

Final Considerations

Regulatory Risk: The Magnificent Seven, due to their size and influence, are under increasing regulatory scrutiny for potential antitrust and competitive practices.

Valuation Fluctuations: These stocks, while powerful, are still exposed to overall market sentiment and changes within the tech sector.

Emerging Competitors: Even giants can be challenged by disruptive startups or shifts in technology trends that can change the competitive landscape.

Although Apple has faced a challenging period, factors such as potential short covering, technical support, favorable valuation, and sentiment within the tech sector offer reasons for cautious optimism. Investors will be closely watching to see if a rebound materializes, allowing Apple to regain its leadership position in the market.