Technical Analysis


Apple: A Positive Shift in Sentiment

October 28, 2015

Apple reported a solid quarter and provided guidance that was slightly ahead of our expectations (you can check out our pre-earnings expectations here). The most important pieces of the report weren’t provided in writing, but rather gathered from Tim Cook’s comments on the conference call.

FUNDAMENTALS

  • iPhone. Missed our estimates on the unit count, but ASP was well ahead of our expectations. Overall, revenue came in just 0.7% below our projection. We don’t see this as a negative; instead, we view it as Apple management shifting sales into the much tougher comp – the December quarter.
  • Macs. Our revenue projection was within 1.0% of the actuals, with units very slightly below our estimates, but ASP making up much of the difference.
  • iPad. This was the most meaningful departure from our estimates. Not only did they sell nearly 400,000 more iPads than we expected, but the ASP was also $23 higher than we expected.
  • Apple Watch. We were way too optimistic about the growth in the Apple Watch. Based on our estimates, Apple sold 3.6 million units, well below our 5.0 million projection. This growth rate looks very similar to the iPad after its introduction. We had expected higher growth since the iPhone installed base is so much larger now. Therefore, we’ll be reducing our estimates for Fiscal 2016.
  • Revenues. Overall, revenues came in 1.3% ($692,000) below our estimate. This can almost fully be attributed to the lower than expected Watch sales (1.4 million units x $450 ASP = $624 million).
  • EPS. We had projected $1.98 in EPS, just $0.02 above the actual.

Overall, we were ranked #12 of 33 analysts, both independent and professional, by Philip Elmer-Dewitt (here).

Guidance and Revised Estimates for Q1. Apple management guided to a mid-point of $76.5 billion for the December quarter. This is slightly above our $76.0 billion expectation. They set the low-point over $1 billion higher than last year’s actuals, deafening the crowd that was calling – not only for zero growth – but for negative growth. Tim Cook was also explicit when he said that iPhone revenues would be up, and so too would iPhone unit sales. It would not be a “trick” generated simply by higher ASP’s. It’s more unit sales. He was also clear about his view toward China. There has been no slowdown for Apple.

  • Macs. We’re bringing our estimates down from 5.80 million units to 5.75 million.
  • iPads. We’ll be raising our iPad estimates to 15.5 million units from 14.5 million units, due to the higher sales in Q4, the iPad Pro introduction, and increasing confidence in this category into the holidays.
  • Watch. We were disappointed by the numbers in Q4 and will be decreasing our estimate from 7.5 million down to 6.5 million. This is very similar to the iPad launch. In its second quarter, it gained 900,000 sales over the prior quarter (same as Apple Watch). In the next quarter, which was the Holiday quarter, it generated an additional 3.0 million sales.
  • iPhone. We’ve had our estimates at 82.5 million units and have decided to leave it as is.
  • Revenues. Based on these estimates, we’ve projected $79.9 billion in revenues. This equates to a 4.5% beat vs. the guidance mid-point. We feel very comfortable with this.
  • EPS. These estimates lead to an EPS of $3.48. This would equate to an LTM EPS of $9.62.

Fiscal Year 2016. We’re currently estimating FY2016 revenues at $255 billion with $10.63 EPS. Many investors are concerned that Apple can’t beat the “tough comps” coming up over the next few quarters. On the call yesterday, Tim Cook mentioned a single word several times: “subscription”. He views the iPhone as a subscription business, and so do we. The annual upgrade plan even more so, as well as the future roll-out of carrier billing via Apple. The growth in China continues to be more than robust and nearly 70% of the iPhone installed base has not yet upgraded to a 6/6s device. The negative foreign exchange headwinds will also decrease substantially after 1Q 2016.

TECHNICAL ANALYSIS AND CHARTS

Apple’s post-earnings reaction was very muted. The after-hours action was essentially nill. This morning, shares traded up slightly, and rallied slowly throughout the entire day. Shares are now sitting at the highest level since mid-August, over two and a half months. They ended the day near a critical make-it-or-break-it level, as you will see below. It certainly looks bullish, but keep in mind that we’ve got to get back above the $120 and 200dma level – and do so quickly to keep the momentum in a positive direction.

Inverted Head and Shoulders. Shares of Apple closed today just above the highs from last Friday, and at the highest level since mid-August. There’s a lot in the chart below. First, the inverted head and shoulders below is clear. It has technically broken the neckline ($117.50), and has a price target of $142. We love it when multiple pieces within a chart fit and work together. Interestingly, the Fibonacci extension levels all correspond exactly with very significant resistance levels. As you can see, each of them lines up – the 38.2% with the bottom of the post earnings gap, the 50% with the top of the gap, and the 61.8% with the all-time highs.

Additionally, the RSI has broken out of its downtrend and successfully tested it on the breakout. And the MACD is very bullish, starting from low levels and has room to run. Lastly, the 200dma is *still* rising, as surprising as it may be, and the 50dma is no longer falling.

AAPL IHS

Post-Earnings MACD. The MACD has risen into each of the five earnings announcements shown below. In two prior examples, the MACD continued to be bullish after earnings. In those two cases, shares continued to rally in a very significant way for many weeks after the report. In the other two examples, the MACD turned down immediately after earnings and acted weak all quarter. We see the MACD after yesterdays earnings continuing to act very strongly. That bodes well for the quarter.

AAPL MACD on Earnings

The Trend is Your Friend. An uptrend is defined as creating higher highs and higher lows. You can see that in the chart below. In mid-September, Apple created a higher low. In the past couple of weeks, it created a higher high than early September. Shares are back in an established uptrend.

AAPL Trend

IMPORTANT LONG-TERM CHART. The weekly chart below includes the 25 exponential moving average (EMA). We view that as a crucial long-term chart, since it has acted as support during uptrends and resistance during corrections. You’ll notice that we shaded each period of time during which shares saw a meaningful correction (well below a 50 RSI). After those periods, once the shares re-take the 25EMA, there has been a meaningful rally within just six weeks, and often continued for several more weeks or months. Additionally, upper Bollinger Band has been touched within 6-8 weeks each time.

Well, shares just broke through the 25EMA (as well as the 50 RSI level, which has been associated with the bull moves in the past). We can expect the 100% – 125% Bollinger Band level to be touched around the holidays. While that range currently sits at $130-$138, it will rise if price does.

AAPL Weekly EMA and BBand

Post-Earnings Bollinger Bands. Below, we illustrate each Apple earnings report. In those instances when Apple hits the upper BBand within the week of the announcement, we’ve shown it as a bold green line. You can see that during those quarters that quickly rose to the upper BBand, there was a quick and meaningful rally of approximately 20% in six weeks. In the one instance where it was below that level (11%), that’s because it hit the prior all-time highs, where it found resistance for a short period.

AAPL BBands Post-Earnings

NASDAQ (QQQ). The NASDAQ index is sitting at its all-time highs. Can you believe how quick that was?? It formed a pretty well-defined double bottom, which targets new highs near $119. We may see a gap fill down to the $110 level, or a re-test of the breakout point at $109. But the longer-term uptrend is still intact.

QQQ

S&P500 (SPX). The SPX has retraced the large majority of its losses. It gapped back up above its 200dma, re-tested it, and has since lifted off. The markets are looking solid at this point.

SPX Daily

Long-Term Trend. The long-term trend continues to be up. SPX bounced off the trendline where it formed a double bottom, and has since broken out (target at 2170, roughly 4% above current levels).

SPX Weekly


Apple: A Pivotal Report

October 25, 2015

Welcome back, folks! Over the past three months, we’ve spent most of our time analyzing the Apple technicals on Twitter (you can follow our feed on the right sidebar of this page). With Apple releasing its fiscal 4Q 2015 earnings – and even more importantly guidance for the holiday quarter – on Tuesday, we wanted to prepare an update on our expectations. We will review both the fundamentals as well as the technicals, and our thoughts heading into the report.

FISCAL 4Q 2015 EXPECTATIONS.

AAPL 4Q15

So let’s look at this by category:

  • iPhone unit shipments tend to be slightly higher during 4Q than the prior quarter. This is largely driven by the introduction of the new devices in late September each year. While the prior (n-1) devices fall off a bit going into the release of the new devices, that dynamic is more than made up for by the annual surge at the end of the quarter. Based on the trend analysis we’ve conducted looking at the year-over-year (and quarter-over-quarter) growth in unit shipments, we’re adding 2 million units compared to last quarter and 10 million compared to last year. While it’s a big jump over last year on an absolute basis, the percentage growth is in-line with what we’ve witnessed in the past. Additionally, the move to a larger form factor is driving some additional growth in the 6-series devices. On a pricing basis, we’re projecting an ASP of $655. This equates to a $5 decline over last quarter and a $50 decline over last year. This is in-line with the 4S and 5S models, as a larger percentage of users purchase the n-1 device (i.e. the 6, not the 6s).
  • Mac unit sales will likely come in at 5.8 million units. This category continues to see growth, but is well-established at this point and easier to forecast than the iPhone and iPad categories which have seen varied growth rates over the past few years. Over the past four years, it has seen growth ranging from 22-25% over the prior quarter. That is a very tight and well-defined range. We are projecting growth of 21%, equating to 1 million more units than last quarter. Similarly, Macs tend to experience a $50 decrease in ASP between the third and fourth fiscal quarters. We are projecting a similar decline to $1,200 ASP.
  • iPad will likely see a further decline in unit sales. The holding period of these devices is far longer than we would have expected. We’re projected 9.5 million units were sold in 4Q, down 1.5 million from the prior quarter. We’re also estimating a minor decrease in ASP to $410.
  • Apple Watch has seen an enormous shift in sentiment over the past few months. The initial huge expectations has turned into almost an afterthought. We were surprised to see some of the extremely low numbers that others are projecting. We are projecting respectable growth from 2.6 million units sold last quarter (our own estimate, since Apple doesn’t disclose this) to 4.5 million units in 4Q. Tim Cook stated that there will be more Watches sold this quarter than last, and even more during the holiday quarter. Some took that to be his way of lowering expectations. In our view, he was simply stating the obvious. With the additional data point of both Best Buy and Target fast-tracking sales into as many stores as possible, it’s clear that these things are selling.
  • REVENUE. We are projecting $52.1 billion in revenues, which is 4% above their guidance. This would be the second lowest beat against their guidance over the past two years. We tend to have a conservative bias in our numbers, so feel good that our numbers are not only likely, but that there is more room to the upside than the downside.
  • EPS of $1.98 that we are projecting is $0.10 higher than consensus. The fact that we believe the risk to the upside is higher than the downside risk makes us comfortable that Apple will in all likelihood beat consensus for 4Q 2015.

FISCAL 1Q 2016 EXPECTATIONS.

Importantly, there is much more to the story than simply performing well last quarter. The guidance for the holiday quarter will drive the post-earnings reaction. During last year’s holiday quarter (1Q 2015), Apple experienced a huge beat vs. consensus, whisper numbers and even their own guidance. While they typically beat their own guidance by 4-7%, last year they beat their guidance by almost 15%. That has caused many to theorize that they simply “pulled” future demand into that quarter due to the spike in interest for the larger screen.

It’s a similar dynamic to what happened with the 5s device. After selling 10 million more iPhone 5 units in the holiday quarter than the prior year (4s), the transition to the 5s device only saw a 3 million increase. Share price started to decline in September 2012 in anticipation of these very challenging year-over-year comps. The fear at this juncture in the current environment is that we will see the same dynamic with the 6s device. Apple was able to sell 25 million more units in 1Q 2015 (74.5 million units) than they were able to in 1Q 2014 (51.0 million units)). No way Apple could beat a comp like that, right?

AAPL 1Q16

So why do we disagree with the general consensus?

We are projecting $80.1 billion in revenues and $3.56 EPS for the holiday quarter, based largely on the sale of 82.5 million iPhone units. There are a few dynamics we need to keep in mind here. Let’s first look at this from a “top down” approach, instead of a “ground up” approach.

Apple has never guided to a lower revenue number on an annual basis. Even in the weakest of their quarters, which preceded (and likely caused) the crash in late 2012, the still guided nearly $2 billion higher than the prior year actual revenues. They’ve been able to do this as the markets the products are available within and their market share continues to grow. Tim has continued to set expectations at a high level and has even gone so far as to send a letter to Jim Cramer explaining that growth in China continues to be robust. We do not believe he would be sending these signals had he expected growth to stop this quarter. Therefore, until proven otherwise, we have to assume that the historical dynamics will remain unchanged and that Apple will guide to a higher revenue number than last year ($74.6 billion). Furthermore, since Apple historically beats by 4-7% compared to their guidance, we know that they will not set themselves up to fail. In all of the quarters in which they’ve issued guidance going back to 2008, they have never come in lower than their guidance.

When you take all this together, it implies that current estimates for the quarter are simply too low. If they guide to a mid-point of $76 billion in revenues (just 2% above last year’s actuals), that sets them up for an $80 billion quarter. That’s just about exactly the figure we achieved when undertaking our “ground up” analysis above – by projecting unit sales and ASP for each category. It always gives us more comfort when multiple analyses line-up and point to a certain outcome.

TECHNICALS. Now for the fun stuff 🙂

Downtrend & Fib Levels. As soon as AAPL broke through the downtrend line from July earnings through early last week, shares surged. Significantly, not only did it break through every significant Fibonacci level, but it broke above the strong resistance level at $117.50 like it was nothing and closed above the $118.50 resistance level (dotted black line). You can also see the blue descending channel that looks suspiciously like an inverse head and shoulders pattern that has broken to the upside…

AAPL Hourly

Inverse Head & Shoulders. Speaking of the H&S bottom, see below. That’s almost as clear-cut as it gets. Don’t focus on the exact price of the shoulders. The premise is this. Shares form a new low price (left shoulder), then bounce to create a neckline. The bulls fail, and shares fall to a new low.  But the share price is able to recover to the same neckline area as the first bounce. On a subsequent drop, the bears fail and create a higher low – thus ending the downtrend (defined as creating lower lows and lower highs). Once the bulls are able to take price above the neckline, it’s a signal that a new uptrend is in effect (since there is a higher low and a new higher high). That is exactly what we’ve seen here. But we also have the important signals of RSI breaking through a nine-month downtrend (red dotted line up top) as well as a bullish MACD cross. We will be much more comfortable with the pattern if it’s able to break above the 200dma.

AAPL IHS

Bullish MACD Crossover. On the chart below, you’ll notice that we’ve seen a bullish MACD cross (green dotted lines) just prior to the four previous earnings announcements (black vertical lines). Two of these have preceded strong rallies, and two have preceded pullbacks. What’s interesting to note is that the two failed MACD crosses happened while price tested all-time highs on weakening RSI. That is no longer the case.

AAPL Daily Earnings MACD

Longer-Term RSI. While we’re on the topic of RSI, let’s look at a longer-term chart. There’s a curious recurrence taking place in the chart below. Each time the weekly RSI gets to a severely oversold level (i.e. deep into the red highlighted area) the shares have rallied to hit at least the top Bollinger Band, if not the 125% BBand level, within roughly 6 weeks. That equates to the $131-$138 level based on the current BBands, but remember the top Band will continue to rise with price.

AAPL Weekly EMA

Additionally, notice the 25 weekly ema on the chart above. It tends to act as solid support during uptrends, and marks a significant caution point when breached to the downside. However, each time shares have punctured back above this level, it has seen a significant rally.

25 Weekly EMA. Here’s a closer look at that 25 weekly ema. You can see the significance of this level. It’s also interesting to note that each time the EMA flattens, it tends to signal an inflection point in price. We just saw it turn back up slightly, which may indicate that shares are ready to resume their uptrend.

AAPL EMA Inflection

Daily Bollinger Bands. A very important piece of the puzzle is the BBands. This is a cautionary note heading into earnings. At the bottom of the chart below, we’ve included the %BB, which measures where against the Bollinger Bands that price is trading. We’ve provided colored circles for where shares sit along the BBands heading into earnings (red = top, green = bottom, grey = middle). Since the BBands measure standard deviation from the 20dma, it should be no surprise that shares tend to revert toward the mean. Historically, over the past three years, when shares are sitting at the bottom BBand (green), they rally after earnings; when sitting at the top (red), they either consolidate in the best case, or decline. It’s important to note that shares sat at the top of the BBands heading into both 2Q15 (April) and 3Q15 (July) earnings, and we saw a decline on both occasions. It’s important to keep this indicator in mind.

AAPL Earnings BBand

Bollinger Bands Over a Longer-Term. However, before thinking that we’ve turned into a raging bear, we’ve analyzed how share price tends to react to hitting the top of the BBands (100% BB). Interestingly enough, there is zero trend here. Out of the 24 occasions we measured below, 12 marked the top, and 12 marked either near-term consolidation, or a continued rally. The other aspect to note is that when shares did, in fact, continue rallying, the RSI leaped to the 80-90 level.

AAPL Daily BBands

CONCLUSION. Guidance will be critical here. We mentioned the BBands only because they were an important aspect to the prior two earnings announcements. We observed it both times but did not factor it into our investment decision. Based on all of the charts and fundamental factors, what we’re currently expecting is this. Apple will beat estimates in Q4 and issue guidance that implies an $80 billion quarter may be at hand. But we will not see a spike in after hours trading as we did for GOOG, MSFT, AMZN. Instead, we will see a more muted move over the next few days, followed by a rally to new highs as we enter the holiday season. We will be watching closely for clues over the next two days and re-assess as we head into the big announcement.


Two Minute Drill

February 10, 2015

Want to quickly run through some charts we’re watching, many of which are actionable. In no particular order…

SPY (S&P500). After six weeks of consolidation between $199-$206, it is beginning to feel like the bulls are taking control. In this market, we often see an initial false move (either a false breakdown or breakout). But two false moves is less rationale. That’s because a false move is essentially an accumulation strategy by large investors. It allows them to sweep the stops that are in place. For instance, if they want to accumulate longs, they shake out traders who have sell stops in below the current range (i.e. the $198 level on Feb 1). What we labeled as “False Breakout” on February 6 was, instead, more likely an indication of the true move. We’re seeing follow through now.

SPY

SPY (S&P500 #2). Additionally, if you look at the daily SPY chart below, it’s clear that the bulls have actually been in control during this entire consolidation. It hasn’t felt like it… but price has remained above the 38.2% Fibonacci retacement level from the October lows to the December highs. That retracement level also happened to rest at the rising channel support level (funny how technicals tend to converge at certain support/resistance levels). Further, price finally broke above – and re-tested – the January downtrend line. Things seem to be turning around.

SPY2

AAPL (Apple). As we detailed in our AAPL post yesterday, shares formed a relatively well-defined cup and handle pattern. Today, shares broke through and powered higher. Remember that shares may always re-test a significant support/resistance level. We wouldn’t be surprised to see shares revisit the $120 level and bounce higher. But we do expect that shares will be significantly higher in the coming weeks and 2-3 months.

AAPL C&H

IWC (Microcaps). The microcap index has formed a very nice inverted head and shoulders pattern. After an initial breakout that found resistance exactly at the 38.2% Fibonacci extension level, the IWC re-tested its breakout level and has largely held the $74-75 support. We do expect higher prices in the weeks and months ahead.

IWC

QQQ (Nasdaq). The QQQ’s have formed a ten week triangle consolidation pattern with very well-defined support at $99.50 and resistance found at the descending trend line. For the first time during those ten weeks, the index has peaked its head above the downtrend line. With the broader markets (SPY, IWC above) showing a bullish turn, we expect the QQQ to do the same.

QQQ

TSLA (Tesla). We’ve written detailed posts explaining our bearish sentiments on TSLA. We went short at 220 in early January and covered in the low 190’s. Instead of short and hold, we’ve been opportunistically entering quick short trades. As shares re-tested the 200MA this past week, we re-entered that position with a stop above the MA.

TSLA

TSLA (Tesla #2). Additional support for our bearish thesis is illustrated with the 40MA on the weekly chart. It’s clear that this is a significant moving average to watch – it defined the exact lows through 2013 and 2014; it also defined the exact resistance in December and again this last week. A close above this would negate our bearish thesis.

TSLA2

TWTR (Twitter). We took a small long position as shares reclaimed the 200MA the day of earnings. That was a signal that investors were showing their hand early. During the post-earnings rally, shares found resistance at the 61.8% Fibonacci retracement of the October high – December low. Today, TWTR found support at the 50% Fib level. We continue to hold our long position and will exit with a close below today’s low.

TWTR

YHOO (Yahoo). Shares of Yahoo have gotten crushed since earnings. We had expected that the 38.2% Fib level would hold, but clearly it did not. Instead, the 61.8% Fib level was tested after earnings (and has since held). Depending on your view here, it might be a decent risk/reward. With the 200MA less than 2 points below current prices, there’s a lot of support in this zone. Just remember to have stops set.

YHOO

FAS (Financial 3x Index). During the recent spike in volatility, financials were hit hard. The 3x financial bull index formed a double bottom with a neckline that sat directly at the 50MA. We love when these support/resistance levels converge, because it makes a breakout that much more meaningful. The target on this breakout just happens to coincide with the recent all-time highs at $132.50.

FAS

GM (General Motors). As we explained in a post before earnings, we entered bullish positions as shares broke above the $33.50 level. At that level, the 10, 50 and 200MA’s all converged. Clearly, a break above that level is a very meaningful. Funny how technicals often lead fundamentals. The earnings report was solid and shares spiked. We exited our position as it nears its $39 target. Might be time for a breather, but definitely not a short here.

GM

GS (Goldman Sachs). Just like the financial index above, GS formed a double bottom at $172.50 and just broke above the neckline at $182.50. However, the 50MA sits 2 points above current prices, which may be resistance. If shares do break through the 50MA, we will likely enter intermediate-term positions. But the risk/reward is simply too high until it re-takes that resistance level.

GS

GOOGL (Google). We wrote a detailed post on GOOGL and explained why shares were likely to find resistance at the $490 level. We exited two weeks later at $530 (50MA at the time). While shares did continue to the upside, we have to remember that we don’t need to catch the entire move. In fact, we should NOT try to catch the entire move. That level of greed leads to bad decisions. Know at what level it will be “enough”, that you’ll be proven right and that you’ll have a profit that you are happy with. Back to the charts… GOOGL has formed an inverted head and shoulders pattern. However, the 200MA sits just 10 points above the neckline, which makes for a tough decision. We’ll wait for the 200MA to be retaken before entering any other long positions.

GOOGL

GOOGL (Google #2). We posted the chart below as one piece of our bullish thesis on GOOGL while shares were sitting at the $490 level. It bounced off that level again. This is one to watch…

GOOGL2

NFLX (Netflix). Shares of Netflix are forming a bull pennant after skyrocketing on a nice earnings report. This one could be headed to all-time highs. RSI has backed off overbought levels, leaving additional room to the upside.

NFLX


$GM: Good Times Ahead

February 3, 2015

Shares of GM have formed a relatively well-defined inverted head and shoulders pattern. The neckline has been tested no less than six times in as many months and there is a clear low (August), lower low (October), and a higher low (December). All the recipes to satisfy a head and shoulders bottoming formation.

Significantly, in the current market, we really need to see not only pattern confirmation, but also a validated re-test. We saw that in January as shares re-tested the neckline. While they did briefly fall below the neckline, the current market has been all about false moves – whether they be false breakouts or false breakdowns.

Additionally, the neckline happened to rest at almost precisely the 200MA and 50MA. All very important levels. And the MACD on the daily chart is curling up as well. We believe shares will be significantly higher in the months ahead. This is supported by fundamentals as well, as the severe drop in oil prices allow the company to regain its competitive edge against transportation options that use alternative forms of energy. Shares could see the $39-40 level before summer.

GM


$AAPL Earnings: Great Expectations

January 25, 2015

Apple’s fiscal Q1 earnings are set to be announced Tuesday after the close. We have high expectations – not only for the quarter behind us, but also for the quarter ahead.

As we laid out in our early January post on $AAPL in 2015, we expect shares to trade around the 15x-19x PE range for a majority of the year. A stock trades within a valuation range that is based entirely on expectations. Expectations on growth, expectations on stable or growing revenues, expectations for new products, expectations on margin… you get the point.

VALUATION RANGE. As illustrated in the chart below, Apple tends to trades within a PE range of roughly 5x PE for an 18-24 month period. The valuation range shifts over time as the fundamentals of the business and investor expectations change. For the past six months, Apple has traded between a 15x-19x PE valuation. In our expectation, that range should stay in place as expectations for continued iPhone strength and a new product (Apple Watch) keep sentiment high.

AAPL PE

UNIT SALES EXPECTATIONS. We expect Apple to deliver very strong earnings for the December quarter on an absolute basis, but also (and even more importantly) on a year-over-year basis. Our PE valuation above is based on the last twelve months, or trailing, EPS. Assuming a constant PE range, earnings growth over the prior year is what boosts share price.

  • iPhone. We all know the story… Apple will sell more iPhone’s than it has ever sold by a huge margin. During the year ago quarter, Apple sold 51 million iPhones, which at the time was the most ever. We expect 69 million iPhone sales to be announced, a 35% YOY increase. That growth is driven by the popularity of the larger screen size (both the 6 and 6 Plus). Importantly, we also expect ASP’s to increase to $676, due to the shift in storage capacity along with the increased pricing of the 6 Plus.
  • iPad. We expect iPad sales remained elevated during the Christmas quarter, but believe a significant drop will occur without any serious structural improvements in the form factor. The iPhone 6 Plus, of which we expect roughly 14 million were sold last quarter, is absolutely taking share from iPad sales. We expect 20 million sales last quarter – a 23% drop year-over-year. We expect ASP’s to be relatively inline with last quarter, at $425.
  • Mac. We’re projecting 5.5 million Mac sales during the quarter – a 14% increase over last year and flat over last quarter. As we saw last year, we expect an increase in ASP to $1,300.
  • Other. We’re expecting a moderate increase in iTunes revenue to $4.8 billion and Accessories to come in at $2.25 billion (including roughly $250 million from Beats).

EARNINGS EXPECTATIONS. Based on our unit sales and ASP projections, we’re expecting $69.97 billion in revenues for the quarter, roughly 7.5% higher than the mid-point guidance provided by management. This leads us to an earnings per share estimate of $2.67. Apple’s LTM EPS would increase by $0.60 to $7.03 per share.

AAPL Earnings

GUIDANCE. We’re currently projecting $55 billion in revenues next quarter and gross margins of 38.6%. If management guides to a mid-point in the $53 billion range, we believe our current estimates will be relatively stable going into next quarter.

LOOKING AHEAD. Based on our valuation range and the new $7.03 earnings per share, we would expect shares of Apple to trade in a range between $106 and $134. This is one of the reasons we were increasing our long-term positions in Apple as shares hit $105 due to options expiration last Friday.

Looking ahead to Fiscal 2015 (ending Sept 2015), we have estimated relatively conservative assumptions and reached a LTM earnings number around the $8.50 level. This assumes a moderation in iPhone sales to 55 million next quarter, then 45 million and 42.5 million in the following two quarters. It assumes iPad sales struggle around the 10 million level over the next three-quarters, and between 4.75-5.25 million Mac’s sell each quarter. These are all highly defensible and, in our view, conservative numbers. We estimate 3.5 million Apple Watches are sold in the June quarter and 5 million are sold in the September quarter – again, conservative assumptions.

If our 15x-19x PE range thesis continues to hold, we would expect shares to trade in the $125-$155 range after September earnings are announced. The LTM EPS vs. Share Price chart below is supportive of the same fundamental story.

AAPL EPS Growth

CHARTS: RISING CHANNEL. Apple twice re-tested the bottom trend line of its long-term rising channel over the past few weeks. It held and shares are now forming a longer-term bull flag. MACD is turning up and the RSI has plenty of room to the upside.

AAPL

CHARTS: NEAR-TERM BOTTOMING PATTERN. Apple has formed a bottoming pattern over the past several weeks that can technically be interpreted as either a double bottom or an inverted head and shoulders. In either case, the target points to new all-time highs if shares are able to break through the $113 level. It’s also important to note that the 7 week downtrend line was broken late last week, easing the resistance to the upside.

AAPL ST