As Apple gears up for earnings, chart analyst sees warning signs

Apple may have a few worms.

So says Mark Newton, founder and president of Newton Advisors, after finding some points of technical weakness in Apple’s stock charts that have him worried ahead of the company’s Wednesday after-the-bell earnings report.

“I don’t like the stock all that much here,” Newton said Wednesday on CNBC’s “Trading Nation.” “I don’t think it’s all that technically attractive and it’s had quite the run, up about 53% year to date.”

First on Newton’s list of concerns is that Apple’s stock has “gotten overbought yet again,” but not quite as overbought as it was at its peak in September 2018, a sign that the forces driving the rally could be quite narrow and especially vulnerable to breakdowns.

“The stock is a lot higher than we were when we peaked last September, but yet momentum is nowhere near that,” Newton said, adding that Apple’s weekly chart, below, shows “what we call negative momentum divergence, [which] can be a problem in suggesting if a stock likely has gone a bit too far too quickly to the upside.”

Based on the daily chart, shares of the iPhone maker have also broken below a one-month uptrend that began in October, a sign that, amid “extreme overbought conditions,” could mean that “the stock is gradually starting to fade and starting to roll over a little bit,” Newton said.

“This makes me concerned about a pullback, at least down to right near [$]215 to 222 from current levels,” he said. Apple’s stock was trading just above the $242 level toward the end of Wednesday’s session. A drop to $215 would represent a decline of about 11% from that level.

“A move down under that, of course, would suggest a larger pullback and would likely be a little more negative for growth after recent outperformance in that area,” Newton said.

That could spell trouble for the broader technology sector, the technician added.

“Apple’s certainly a bellwether for all of technology. It’s going to be really, really important,” he said. “I just don’t think the stock can continue at current levels. It’s obviously quite bullish and … anybody with a ruler can say the stock is up, but yet there [is] some evidence, at least that I look at, that suggests it’s a bit overdone here and really needs to consolidate some of these gains.”

Chad Morganlander, senior portfolio manager at Washington Crossing Advisors, found enough in the tech sector to make him relatively bearish.

“We’re underweight growth stocks as well as tech stocks,” he said of his investment firm. “You have to understand the exposure to international for tech is the largest out of the S&P 500.”

As such, concerns around slowing global growth could threaten tech’s gains in the year ahead, Morganlander said in the same “Trading Nation” interview.

“Global growth does matter for this sector, and this quarter, you’re seeing year-over-year revenue, year-over-year earnings deceleration and it’s a drag on S&P earnings,” he said. “We anticipate that there are lofty expectations for 2020 for revenues as well as earnings for the technology sector, so we would be certainly underweight. Overall, we think that this could be a drag, again, for the S&P 500 as well as we would be underweight the … IWF, the Russell 1000 growth [ETF].”

Apple shares were down less than 1% on Wednesday ahead of the close.

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