December 22, 2012 (5:00 pm)

Remember when I wrote a week ago that sentiment would soon change? Sentiment and technical analysis are sort of like the chicken and the egg. Do the technical indicators drive buyers (or sellers) to accumulate positions and release good (or bad) news to drive the price in the desired direction? Or does the sentiment change create certain indications within technical analysis that is more bullish (or bearish) than it previously was? Either way, lets forget technicals and focus on sentiment and where I think it’s going.

Last Sunday night, Citi downgraded AAPL to hold and lowered the price target from $675 to $575 on lower than expected demand for Apple products. This created cover for a handful of other analysts to lower their price targets from previously lofty levels ($800-$900 range) down to prices that are more palatable to investors today ($650-$750).

Since those downgrades, though, there have been a lot of solid headlines. Look at the headlines of a few articles I came across over the past 24 hours. Sense the trend change?

FORTUNE: In 9 weeks, iPhone share of US smartphone sales grew 17.5%

“Apple hit highest-ever 53.3% smartphone market share in the U.S. by Nov. 25, up from 38.8% in 2011, Kantar reports”

MOTLEY FOOL: Apple’s iPad mini is a Screaming Success

“With yield rates improving, iPad mini shipments for the first two months of the fourth quarter have already surpassed eight million units, and should successfully break 10 million for the quarter with a chance to reach 12 million, the sources noted.

The viability of the new iPad Mini was questioned when released due to the high $329 price tag. Assuming this Digitimes report is correct, these fears are now proved baseless. In fact, the sales are exceeding expectations.

Overall, this shows that Apple is still doing fantastically well. There is no real reason to believe that the iPhone sales have slipped, the new iMacs are selling out, with 7-10 day delivery times listed on Apple’s store site, and word is they are sold out in Amazon.

We know the iPhone 5 is doing well and the supply chain seems to have worked out many of the kinks. Now this new news indicates that we should expect a great quarter from Apple. Once the Capital Gains deadline has been breached, shares should do very well.”

Tablet Activation

MORGAN STANLEY EQUITY RESEARCH: Strong US Demand

Despite concerns to the contrary, iPhone and iPad demand remain strong. C4Q US iPhone purchase intentions beat our forecast. Stable 50% iPad share also surprised us, despite our modeled drop next year. We remain OW on this Morgan Stanley Best Idea and recommend owning into early 2013.

Our survey of over 1,000 US consumers indicates strong iPhone 5 demand in C4Q12. US C4Q iPhone growth of 33% matches our above consensus global forecast of 35%, despite higher US penetration. Importantly, a greater percentage of consumers plan to purchase the higher priced iPhone 5 as compared to iPhone 4S mix a year ago. As a result, we see potential upside to both our 50M unit (+35% Y/Y) and $642 (-4%) ASP assumptions in C4Q.

iPad share surprisingly resilient and iPad Mini cannibalization concerns overblown. iPad share is expected to remain at 50%, better than our forecast of a 6-point share drop in 2013 and despite more low-priced offerings from competitors. iPad mini is a key demand driver, accounting for 34% of planned iPad purchases. Forty-seven percent of iPad mini purchases are to new customers, only slightly lower than the 56% for iPad 9.7” suggesting cannibalization risk is manageable.

Apple holding its own against Samsung. Rising Samsung share is at the expense of other Android Smartphones and tablets as iPhone share of new purchases is also expected to rise (4 pts) over the next year. iPad purchase intention share held steady at 50%.

Apple a clear winner during the 2012 holiday season. Tablets are the number one gift idea in consumer electronics this year, while it was a tie between tablets and e-readers last year. By vendor, Apple ranks highest with 38% of respondents planning to buy its products as gifts this year, up from 34% last year.”

TECH.PINIONS: A Deep Dive Into Morgan Stanley’s Holiday Quarter Survey

“It seems as though the bad press for Apple has been endless of late, but that negative view is not supported by the Morgan Stanley survey. They point to at least four reasons why Apple can be optimistic about sales this holiday quarter.

      1.  More survey respondents want to buy the iPhone 5 today than the iPhone 4S a year ago. 34% of consumers plan to buy an iPhone in the next 6 months, compared to 30% in last year’s survey. If I recollect, the iPhone 4S was pretty popular last year. And one would assume that even more enthusiasm for the iPhone 5 should lead to even more sales this holiday quarter.

2.  Analysts keep opining that Apple needs to sell a cheaper phone but customers keep disagreeing. More respondents plan to buy the newest iPhone model today than a year ago (86% vs, 82%), likely due to key hardware improvements in the iPhone 5: LTE, brighter screen, and lighter and thinner phone.

3.  The iPad Mini does not appear to be cannibalizing the larger iPad but it does appear to be bringing new customers into the Apple ecosystem. We believe iPad Mini’s cannibalization risk to iPad 9.7” is manageable. 47% of iPad mini purchasers are new to Apple, according to our survey. This is only slightly lower than 56% for the larger iPad 9.7”, suggesting the smaller iPad is attracting new users to the platform in addition to some incremental or replacement purchases from the existing 9.7” iPads.

4.  Apple actually INCREASED it’s already industry leading retention rate. Apple’s iPhone retention rate improved 10 points over the last year, and 83% of iPhone users today plan to buy another iPhone.

I find it hard to believe that Apple’s sales are going to suffer this quarter when both purchasing enthusiasm and retention rates are going up.”