Apple Down After Earnings Fall – Positive Forecast To Bring Shares Back on Track

Shares of Apple dropped 3.51% to $114.10 per share in extended-hours trading on Tuesday, after the company reported a third successive quarter of declining revenue and profits. The results recorded Apple’s first drop in annual revenue since 2001 as the California-based company has been struggling with slowing sales of its flagship iPhone.

For the fiscal fourth quarter through September, Apple’s net income registered at $9 billion, or $1.67 a share, which was down 19% from $11.1 billion, or $1.96 a share in the same period a year earlier. Analysts had expected earnings of $1.65 per share.

Apple posted revenue of $46.9 billion for the quarter, and missed forecasts by $100 million. Those figures also came in short compared with the company’s performance during the same period last year, when it reported revenues of $51.5 billion.

Revenue from iPhones accounts for two-thirds of the company’s total revenue. Apple said it sold 45.51 million iPhones in the three-month period ending September, down 5% from the same period last year.

However, Apple is still optimistic about its business in the current, holiday-dominated quarter. Apple has forecast a revenue range of $76 billion to $78 billion for the fiscal first quarter, given the sales of its new phone lineup – the iPhone 7 and iPhone 7 Plus, especially so, given the crisis at rival Samsung with the Galaxy Note 7.

The technology leader is also confident about the market in China, where the middle class is expanding and smartphone ownership remains low, according to Chief Financial Officer Luca Maestri.

Chief Executive Tim Cook also expressed his confidence in the Indian market. Tim Cook said India was on the brink of a boom in smartphone sales as a more powerful 4G cellular network has been put in place this year and is going to expand next year.

Apple forecast gross margins of 38% to 38.5% for the next three months, which is similar or slightly higher compared to 38% in the just-completed quarter.

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Fig: APPLE D1 technical chart

Apple has been trading sideways around the 61.8% level at 117.25 following a steady rally which sent the shares to 10-month highs at 118.59. Since the price action crossed over the two Mas from below, on July 07th, the prices have been supported by the short-term MA20 and the long-term MA50. With a decline in after-hours trading, Apple’s share price is expected to create a gap down on the chart. However, it is also forecast to cover the gap and extend the recent up move.

Trade suggestion

Buy Limit at 114.50, Stop loss at 111.95, Take profit at 117.25

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