An important week for big tech companies in the United States started. Q2 2020 earnings release coincides with the House hearing on monopoly charges. Apple share price reached $400 two weeks ago – can it move higher still?
The market expects $52.24 billion and $2.06 earnings per share. Any upside surprise creates further pressure against the $400 level and beyond.
However, some investors already signal some potential concerns. First, the House hearing on Wednesday may create a general negative sentiment towards the big tech companies. If the market views the hearings as unconvincing, a nasty selloff may start.
Second, JP Morgan forecasts slightly lower results than the market expectations – only $49 billion in revenue and $1.92 EPS. However, the same company raises the price target for long-term investors to $425, on the back of positive earnings trajectory.
Last but not least, valuation metrics, if they still matter, are sky-high. For example, Apple trades at over 500% difference to the sector on a price/book value.
Anyway, the risk heading into the earnings comes from the House hearings tomorrow. A market selloff will not reverse easily even if Apple earnings beat expectations.
Just like other tech companies, Apple share price met dynamic resistance. On its trip to $400, it met the rising trendline that acted as dynamic resistance for the entire 2020 so far.
Bullish traders may want to see a clear break above $400, coupled with a close above the rising trendline. If not, bears will fight for pulling the price down to pre-crisis levels. In that case, a bearish trading setup needs another attempt at the $400 highs.
If Apple earnings beat forecast and the price jumps above $400, bears can fade the move with a stop loss at the closing of the trading day – if the price is above $400, close the trade, if not, go for the pre-crisis level of $320.
As always, when shorting tech companies in a bull market, the risk of being squeezed on nothing at all is elevated. Therefore, traders must adjust their position accordingly.
