The Tariff Threat to Apple Inc. (NASDAQ:AAPL) Stock Is Real
Headline risk is a tricky thing for an investor. Sometimes the headlines in the media are real issues that affect the real value of a company. Other times, they are just clickbait that spooks traders in the near term. But when it comes to the U.S. trade war with China, the threat to AAPL stock is very real.
“If Apple passes through the 10% tariff to consumers, we could see a hit to iPhone demand by roughly 6 million to 8 million iPhones in the US based on our analysis over the next 12 months based on our overall unit forecast of 185 million iPhones globally for FY20,” Wedbush analyst Daniel Ives said in a note.
Ives estimates the postponed tariffs could lower AAPL stock’s annual earnings per share by as much as 55 cents, which would be a more than a 4% drop.
Apple relies on China so much that trade war fears have prompted the company to consider moving production elsewhere. Unfortunately, Ives says Apple is so reliant on China that the best it could theoretically do is move up to 7% of its iPhone production to India and/or Vietnam over an 18-month stretch.
Trump Won’t Postpone Again
There’s no question the tariff delays on iPhones is good news for AAPL stock investors. Just don’t expect another postponement come December.
President Donald Trump has made the trade war with China a centerpiece of his administration. Trump has also branded himself a master negotiator.
On Aug. 1, Trump tweeted that he would be implementing new 10% tariffs on the remaining $300 billion in Chinese goods not already included in existing U.S. tariffs. In response, China devalued its currency to 10-year lows versus the U.S. dollar. It also said it would be halting all purchases of U.S. agricultural goods.
Yesterday, less than two weeks after Trump’s initial 10% tariff tweet, the U.S. Trade Representative tweeted an extensive list of exceptions to the Sept. 1 tariffs. That long list of exceptions looks a lot like backpedaling on the part of Trump.
“Tell me why Xi [Jinping] should not continue to wait out The World’s Greatest Negotiator, who keeps ‘dealing’ with himself?” Kynikos Associates founder and managing partner Jim Chanos said on Tuesday.
Chanos isn’t the only one who sees the delays as weakness on the part of Trump. Regardless of where you fall on the political spectrum, Trump is not likely to stand for being seen as weak. Come December, AAPL investors shouldn’t count on another exemption or postponement.
AAPL Stock Needs a Trade Deal
Apple stock got a boost on Tuesday, and there’s no question a tariff delay is good news. However, the 4.2% gain was probably a bit much given how little has actually changed. Hence why AAPL gave back most of that gain on Wednesday. Yes, the new iPhone lineup due out in September may now be exempt from tariffs. But Tuesday’s news is only bullish assuming a trade deal is reached by the end of the year.
“If this tariff situation does not cease after further negotiations or exemption, ultimately Apple will have no choice but to pass this incremental $75 to $100 per smartphone to US consumers during the course of 2020, which would throw a wrench into the upgrade cycle,” Ives said.
If not into the 2019 upgrade cycle, it will throw a wrench into the potentially bigger 2020 5G iPhone upgrade cycle.
There’s also another important event happening in 2020, and China is likely emboldened by Trump’s latest concession. Chinese President Xi Jinping knows he doesn’t have to outlast Trump indefinitely. If China can endure the fallout from a trade war long enough to see Trump lose the 2020 election, it can simply negotiate a trade deal with the incoming administration.
In the meantime, investors should expect China to lean into the trade war as hard as it can stand to try to inflict economic pain on the U.S. ahead of the election.
Apple needs a trade deal by Dec. 15, which seems unlikely at this point. In that sense, Tuesday’s tariff postponement is simply delaying the inevitable for AAPL stock.
Overall, the bias in prices is: Upwards.
The projected upper bound is: 212.91.
The projected lower bound is: 193.52.
The projected closing price is: 203.21.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
A bearish harami occurred (where the current small black body is contained within an unusually large white body). During an uptrend this pattern implies an end to the rally as the bulls appear to have exhausted themselves.
During a downtrend (which appears to be the case with APPLE INC) the bearish harami pattern is bullish as the bulls appear to be gaining strength as the bears weaken.
An inverted hammer occurred. If this occurs during a downtrend (which appears to be the case with APPLE INC) it implies a reversal. Look for a confirmation of the reversal on the bar.
A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).
A shooting star occurred (a shooting star has a small real body near the bottom of the candle and a long upper shadow). During an uptrend the long upper shadow indicates that the bears are gaining control and a top may occur.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 61.9454. This is not an overbought or oversold reading. The last signal was a buy 4 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 49.75. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 50 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -5. This is not a topping or bottoming area. The last signal was a buy 4 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 8 period(s) ago.
Rex Takasugi – TD Profile
APPLE INC closed down -6.220 at 202.750. Volume was 32% above average (neutral) and Bollinger Bands were 14% narrower than normal.
Open High Low Close Volume___
203.160 206.440 202.587 202.750 36,547,444
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 201.85 200.79 185.79
Volatility: 52 31 40
Volume: 37,466,056 25,849,450 32,947,420
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
APPLE INC is currently 9.1% above its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on AAPL.O and have had this outlook for the last 8 periods.