Apple's (AAPL) Future Sell-Offs May Boast Key Support Levels

There's no doubt that a serious bite got taken out of Apple NASDAQ: AAPL yesterday, and that bite came after some equally serious growth over about a two-day span before the air came rushing out of the stock price like an inner tube in a room full of broken glass. For one analyst, though, this is actually fairly decent news, because he believes that Apple may have just found a floor going forward.

Minor Losses, Steady Uptick: The Year Ahead for Apple?

Apple's been having a really good run of things this year. So far, the stock is up somewhere around 14%, which is downright amazing for the year we've been having so far. Bank of America even went so far as to raise its price target, which is now one of the highest around at $390.

Yet while Bank of America was looking at new high stock values, Blue Line Capital's president, Bill Baruch, noted that there's also what looks like a floor for the stock as well. Baruch notes that any further decline in Apple shares should be limited, thanks to a look at the historical value of the stock. It beat what he called a “big resistance level” when it beat last year's high at $327.

Even during the massive March sell-off event, in which investors sold off everything that wasn't nailed down, Apple took about a week to stage its own literally V-shaped recovery, going from $244.78 on March 19 to $246.88 on March 24. The bottom of the V came on  March 23, when the stock hit $224.37. Baruch noted as much himself, noting that there was a clearly rising trend line from March lows, which indeed represents the lows for this year.

More Fuel for the Apple Fire

Baruch went on to detail a set of other key points that make Apple look pretty good right now. First, there are the aforementioned trends. Steady uptick since its yearly lows, yearly lows that were caused by conditions so far out of Apple' s control as to be ludicrous, and the like. Second, Baruch points out that there was no “death cross” event that took place, in which a stock's short-term moving average goes below the line of its long-term moving average, a harbinger of potentially bad news to come. Third, Baruch notes that the stock price actively eschewed making a death cross when the possibility to do so came in May, which shows a key resistance point shaping up.

Baruch pointed out one more key point that should be considered: the condition of the tech market today. The rise of 5G technology, which Baruch notes will be coming in over the next 18 months, will have to be accommodated, and that 5G revolution should fuel new phone sales. Baruch also likes how the company has diversified into things like content provision with its streaming services.

Skepticism Seems Contained

Not everyone agreed with Baruch's assessment, at least, not completely. Tocqueville Asset Management's portfolio manager, John Petrides, chipped in, noting that it was difficult to see how tech stocks, in general, wouldn't keep going up, thanks to hefty war chests that ensure yields are paid and operations continue. Petrides actually referred to tech stocks like Apple as “bond proxies” thanks to their sheer liquidity.

However, Petrides did note that there were some downsides for Apple. While Apple has certainly diversified thanks to things like Apple TV, no one was all that sure if it was going to be around to stay or not. Further, Apple has an inherent dependence on “the next iPhone cycle,” which as we've seen recently can be a real downside if something happens to the Apple supply line. Or if people continue to wonder why they're trading in a perfectly good phone every year for a model that may only be slightly better, if better at all, as we've seen increasing in recent years. There's also a very real potential for Apple Pay to gain ground in the post-coronavirus society as people increasingly like the thought of paying for things without touching money.

Yet at the same time, the issues that were previously facing Apple are still there today. There's a non-zero percentage of the Apple base that's tired of buying the new iPhone, even when it looks almost the same as the old iPhone from three or four iPhones back. Thankfully, Apple's adjusting its supply line to take a lot of weight off China, so something like this shouldn't happen again, but Apple basically lost a whole new iPhone generation to the coronavirus. Apple TV is competing in a sea of other set-top streaming platforms, and Apple Pay is one among many when it comes to mobile payments.

Still, Apple has a fiercely loyal user base who is more than happy staying in the Apple walled garden. While that user base may not be quite as large as it once was, it's still large enough to keep investors happy, and that should make Apple a force to be reckoned with for some time to come.