Apple’s (AAPL) Predictable Fall Will Be Followed by A Predictable Recovery

Markets are, in general, unpredictable. If they weren’t, they wouldn’t exist. If moves were easily seen and easily predicted everyone would want to trade the same way, so no trading would be possible. You can’t buy if there are no sellers, nor sell if there are no buyers. There are a few things, however, that are foreseeable, and that repeat with amazing regularity. One of them is that stock in Apple (AAPL) will drop around the time of product launches that include iPhone updates, then rebound strongly thereafter.

In 2019, for example, AAPL fell around five percent from its high, reached a week before the unveiling of the iPhone 11, then subsequently took off and is now over 150% above that level.

AAPL chart

Then, in 2020, when the iPhone 12 was launched, we saw this:

AAPL chart

Again, a drop into and just after the announcement, then a strong run up. Space doesn’t allow me to go back any further, but the pattern has been the same, with very few exceptions, for years.

It isn’t coincidence either.

Most things in markets can be viewed and better understood if thought of in behavioral terms, and this is no exception. The collective view of traders and investors going into these launches is always that this time, Apple will go too far. Consumers won’t want a better camera, or a sharper screen, or a faster chip, or whatever. And, even if they do, they won’t pay the ever-increasing price for the new model phone. There is always a logical sounding reason why every Apple launch will be a failure, and it is always wrong, as evidenced by revenues that keep increasing and a stock that keeps hitting record highs.

At some point, I suppose, there is a chance that Apple finally will overstep the mark. It could even be this week but, given the record of previous product reveals, betting on that outcome falls within the well-known definition of insanity: doing the same thing repeatedly in the hope of a different outcome.

I understand those who say that belatedly fixing the most annoying thing about the iPhone, the relatively short battery life, then hailing the “change” as revolutionary and charging more for it, is a bit cynical. Even more cynical, I guess, is that Apple assumes that the fix to their own problem allows for a few more years of incremental battery upgrades, just as it took multiple models to get to the best camera possible. As that process went on, though, sales grew, not fell. Consumers wanted the latest and greatest and adding a few bucks a month to their phone bill wasn’t about to stop them. Why should this time be any different?

The question during these periodic pullbacks is not whether to buy, but when to buy, and on this one, now looks as good a time as any. Usually, it takes a while, and the bounce starts around the time the initial sales numbers for the new phones start to come in, but there are reasons not to wait this time. Yesterday’s close represents a decline from the high of just over five percent, which is approximately the limit of these drops most of the time, and it also means that AAPL is sitting right on an important support at the 50-Day Simple Moving Average (blue line).

AAPL chart

To some extent, because Apple has such a massive market cap, the stocks will also move based on feeling about the market overall, not just the company and its new products. However, the S&P 500 is also hovering around its 50 MA support and that level has, as I pointed out yesterday, held eight times already this year. If that happens again, the overall market will bounce, and APPL will bounce with it.

The drop over the last week or so in AAPL is, at this point, nothing to worry about. It is something that we have seen repeatedly for years when new iPhones are launched, and yet the company has continued to post exponential growth and the stock has soared to new highs. If anything, given the support levels in both AAPL and the S&P, it looks like a buying opportunity here, so I will be adding to my existing long position today.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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