The Apple Pre-Earnings Trade: October, 2015 Edition – An Important Juncture

At the timing of writing, Apple (AAPL) is up 0.6% for the year, essentially flat. When I last wrote about the Apple pre-earnings trade back in January, I looked back at the December 1, 2014 “flash dip” in AAPL’s stock as a lingering harbinger of more selling to come. As it turned out, AAPL sold off 3.5% on the day just ahead of earnings and popped back up 5.7% the next day. By early February, the flash dip was finally invalidated as a bearish signal. The celebration was short-lived as AAPL peaked out by late February on its way to a very rare quadruple top. That top was confirmed with the post-earnings gap down in July, and AAPL has not been the same since. A downtrending 50-day moving average (DMA) now has the stock firmly under its spell.

Ahead of October, 2015 earnings, Apple (AAPL) continues to struggle to break free of 50DMA resistance

Source: FreeStockCharts.com

This is now a critical juncture for AAPL. October, 2015 earnings arrive after market hours on the 27th. If AAPL does not break out by then, 50DMA resistance will loom even larger as a major test of AAPL’s near-term direction. Also looming over the stock are all the fears about China’s economic deceleration (the rate of growth is declining). China delivered gangbuster numbers for AAPL in July earnings and yet the market was not mollified. Imagine what could happen this time around if China does not deliver? Especially consider the high expectations for China sales given Tim Cook’s recent insistence that China is doing just fine for AAPL. From a TheStreet.com article on August 24th (yes, the day of the flash crash that epitomized the August angst) titled “Here’s What Tim Cook Told Jim Cramer About Apple’s Results in China” (article includes a 47-second video with Cramer’s commentary on Cook’s email):

“First tweeted by CNBC’s Carl Quintanilla, Cook wrote that there is ‘strong growth for our business in China through July and August,’ noting that iPhone activations have accelerated over the past few weeks.”