Analysis: Apple is a difficult technical bet ahead of earnings report

Apple is set to report its third-quarter earnings after the close on Tuesday and the options market is implying about a 4.86% one-day move versus the 4.55% average move seen in the aftermath of earnings releases for the past eight periods, writes Brenda Kelly of London Capital Group.

Analysts have become increasingly bullish on the stock over the last few months with a series of ratings and price target revisions.

There are 40 'buys', 13 'holds' and only two 'sells', with an average 12-month price target of about $149.47, or about 13% higher than current levels.

Short interest remains fairly neutral. The number of shares sold short is at 63.7m and fairly small compared to its overall float at 1.58%.

The basis for the success of Apple’s quarterly earnings report will be iPhone sales, which are expected to come in around 54m.

The Apple Watch, the first project to release under CEO Tim Cook is likely to be fairly tepid, expected to reach 15m units for 2015.

Technical analysis

The stock has had a great run on the year, up 26% year-to-date and trading just shy of its all-time/52 week high.

A pull back to its 200-day moving average (200DMA) and the 38.2% Fibonacci retracement from the October 2014 low to the all-time highs in the early part of this month was an excellent buying opportunity and the stock has surged over 10% since.

Notably, overhead lies resistance, notably the highs of the last earnings release at $134.45.

The share price has moved sideways in a $15 dollar range since late February, thus a breakout through the top could result in a measured move of the same quantity.

Long-term trend line support from the April 2014 lows lies at $125 but the 200 DMA is the key support.

With investors like Carl Icahn extremely bullish and, let’s be honest, overly-vocal about the company, stock in Apple has been underpinned largely due to enthusiasm about upcoming product cycles, including rumours of an electric car in the offing.

This, along with the defensive nature of the company’s balance sheet and stable growth prospects, tends to imply that any dips will be bought.

AAPL remains a crowd favourite among a speculative group of investors.

Currently, AAPL’s put/call open interest ratio comes in at 0.57, with calls almost doubling puts among contracts set to expire within the next month.

With the company’s propensity to surprise either on earnings or on iPhone sales, it is difficult to bet against AAPL heading into an earnings report, no matter how much bullish sentiment is levied against the shares.

Beware the potential for profit-taking in the aftermath of the release.

Brenda Kelly is head analyst at London Capital Group.