Why Apple (AAPL) quarterly results really matter next week. Issuing DEFCON 1 awareness on a possible

Given the volatility global financials markets saw this month, we thought that it would be important to sense what the big trigger would be for a large meltdown (meaning 5-7%) move on equity indices.

We first look at the s&p500 chart and realised that we are now only 3% away from the Feb18 lows of 2580. The index has broken through the 200MA last week, for the first time since Q3 2015.

The previous time we broke through the 200MA decisively in 2015, the s&p500 index traded 10% lower within a week. Given long term trend lines and moving averages have now been broken, we see to find the catalyst for such a move if possible, and realized that perhaps the up-coming apple earnings would be the trigger for the big smash down, if not before.

Apple would report results after the market close on 1/11/18.

Given the heavy weightage on all three major US indices, it is possible that any miss on earnings or guidance would trigger a similar sell off we see in Amazon recently, and Facebook in the previous quarter. Not to mention the repercussion on semi-conductor stocks listed globally which supplies to Apple.

We now shift our attention to how we think Apple Chinese sales would have slowed given the slow down in domestic China in the past 3 months.

We first take cue from the recent earnings and guidance from LVMH and BMW, both luxury products suppliers with China being one of their main sales markets. Both companies gave negative guidance over the outlook in China and traded 10% lower since their Q3 results.

We are thus rather pessimistic on Apple results from the luxury product sales perspective.

Another possible hint to how well Apple perform in Q3 would be taking a look at one of their main suppliers for semi conductor chips.

Taiwan Semiconductor Manufacturing Ltd Taiwan : 2330

Sunny Optical Technology (Group) Co. Ltd HKG: 2382

Both are down at least 20% on the quarter. If the market were to take cue from these performance as well, we would not be bullish on Apple stock here.

We now think the only thing supporting the Apple stock price, with it being the only 1 Trillion valuation company on a 21 PE would be the buyback programme.

We thus remain cautious on Apple as history have proven that buybacks will not save the stock price once the trend have turned in favor of the bears. Look at Tencent and DBS.

Given the chart below with Apple overlay s&p500, we think it is a matter of time the big Apple bring down the entire market once we break the 2580 low, possibly within the next week.

We remain very cautious on the markets with crash mode at DEFCON 1 awareness next week as we head into the Apple earnings date.

Good luck trading!

The Bad Bear