Will Apple return to profitability
On January 27, the stock market panicked over new events in the artificial intelligence (AI) space, which caused major shake-ups and declines in the stocks of major companies such as Nvidia, AMD and Micorn. These fears were triggered after Chinese company DeepSeek succeeded in developing a low-cost AI model, raising concerns about AI investments and future costs and returns. These concerns led to a crisis of confidence among investors and an increase in the frequency of analyst downgrades towards affected companies.
Despite this negative news, Apple showed a strong performance thanks to its development of the iPhone, raising questions about its ability to face challenges and deliver positive results after its earnings announcement.
Fading enthusiasm
Despite the momentum that accompanied Apple's AI innovations and iPhone modernization, enthusiasm seems to have waned. Analysts expect Apple to report weak earnings results on January 30.
Jefferies, a financial advisory firm, downgraded Apple's rating to "Underperform" and lowered its price target to $212. It attributed this to weak iPhone sales and slow market uptake, as well as challenges related to promoting AI features in new models. It also expressed its expectation that Apple could disappoint investors.
Similarly, Loop Capital downgraded Apple's stock rating (from Buy to Hold) and lowered the price target to $230 based on analyst John Donovan's analysis that indicated a significant decline in iPhone demand from the first quarter, with further declines expected in the second and third quarters.
Despite the worsening outlook for Apple, the low expectations could be an opportunity for the company. If the company beats expectations and delivers better-than-expected results, any positive signs could be a big surprise and help boost investor confidence and, in turn, the stock price.
Is it advisable to buy on uncertainty?
Although Apple took several shocks in January, the technical outlook for Apple remains positive. The monthly chart shows that Apple stock found support at $220 and bounced back after hitting a monthly low of $219.
Therefore, if Apple's earnings results on January 30th disappoint significantly, the recent pullback in the stock price could be just a reaction to the expected negative news. Thus, a lower-than-expected result could trigger a positive reaction from investors.
Monthly support
Another important indicator is the 10-month moving average. Analyzing the blue moving average line shows how this indicator was a strong support level in the long bull market period. Even after the decline in the 2022 bear market, this indicator formed resistance on seven occasions until the breakout in March 2023.
Based on this, with the 10-month moving average aligning with the price support level at $220, it could be enough to stop a potential pullback in the coming days.
The necessity of using a stop-loss order
Since trading requires calculated bets based on probabilities, careful risk management and the use of stop-loss orders are essential. It's wise to place a sell order in the $217-$219 range if Apple stock retests its January lows or slightly below before rallying.
Conversely, if Apple's January 30 earnings come in better than expected, the stock could reach new record highs.