While the reports of Apple (NASDAQ: AAPL, Stock Forum) CEO Steve Job's poor health remain greatly exaggerated, the same cannot be said in regard to AAPL shares. The company has failed to inspire buyers with its latest line of revamped iPods, not to mention the bad press following the latest iteration of the over-hyped iPhone. Sure, some of the stock's 50% year-to-date loss can be blamed on broader-market forces such as the credit crisis, but a growing bearish consensus toward the technology sector certainly hasn't helped matters.
Even AAPL's archrival Microsoft (NASDAQ: MSFT, Stock Forum) isn't immune to the malaise, with CEO Steve Ballmer telling Reuters on September 30 that "We have a lot of business with the corporate sector, as well as with the consumer sector, and whatever happens economically will certainly effect itself on Microsoft."
While Apple fanboys will certainly rejoice at the realization that MSFT is not recession proof, declining corporate spending on technology and fears of a consumer-led recession are sure to have a profound impact on AAPL as well. In fact, the stock is trading at its lowest level since April 2007, having blasted through psychological support at the $100 level on Friday last week. The shares are attempting to find some measure of support in the $90-$95 region, but the century mark could prove a spoiler to any rally attempt from the equity.
Technically speaking, AAPL continues to be pressured lower by resistance at its declining 10-day and 20-day moving averages. Additionally, the stock's 10-month and 20-month trendlines are poised for a bearish cross - a technical formation that could indicate additional weak price action for the security.
The more troubling factor for AAPL is that there is plenty of room for more selling pressure to send the shares lower. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.64 ranks below 98% of all those taken during the past year. This reading indicates that options traders have been more bullish only 2% of the time during the past year, and is a bearish contrarian indicator given AAPL's poor technical performance.
Digging into the stock's open interest configuration, we find that peak front-month call open interest for AAPL rests at the deep out-of-the-money October 120 strike, totaling about 46,000 contracts. The second most popular call in the October series is the out-of-the-money 105 strike, which is home to more than 42,000 contracts. By comparison, peak October put open interest totals roughly 32,000 contracts at the deep in-the-money 125 strike, while another 30,000 puts reside at the in-the-money 120 strike. This attention to overhead call and put open interest underscores the fact that investors are not expecting AAPL to fall much further.
The song remains the same among Wall Street analysts. According to Zacks, 15 of the 21 brokerage firms following AAPL rate the shares a "buy" or better. Meanwhile, Thomson Financial reports that the average 12-month price target for AAPL rests at $182.56 per share - an 86% premium to the stock's close of $98.14 per share on Monday. But analysts have begun to rethink their lofty expectations for the equity, as Barclay's recently cut its price target on Apple to $135 from $180 per share.
Should the downturn in corporate technology spending or fears of a consumer-led recession gain traction on Wall Street, we could see more of these bullishly aligned brokerage firms cut their price targets or downgrade AAPL outright. Furthermore, a continued downtrend in the shares could prompt an unwinding of optimism among options traders, lending additional selling pressure to a stock already in dire straights.
See More Articles by Joseph Hargett of SchaeffersResearch.com
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