China stock markets, Apple earnings preview and working from the NICU
We moved our newborn daughter last night to UNM Hospital from Presbyterian so she can get the most cutting-edge treatments that this area has to offer. I have been spending a lot of time at the hospital in Albuquerque with my daughter Amaris who was born with Trisomy 13 and a few complications that come with it. She is scheduled for Monday to have a tracheotomy to help her breathe and a G-tube in her belly to help her eat.
As I keep noting when I update you dear Trading With Cody members on her status, I, like most everybody, have to support my family and continue to work, so I am sitting here in an NICU room typing today’s article from my laptop…
China
Do you guys remember on Wednesday when I wrote and sent out to you that: “I’d personally rather be long than short the Chinese stock markets for the next week. Sentiment can be a great near-term catalyst for both bulls and bears when the fear gets extreme.”
The full comment was:
“Still no tangible panic in the US stock markets. China stock markets are, on the other hand, now truly in panic mode sell-offs. Can you imagine me asking my go-to poll question to Chinese retail investors, “Who’s more scared right now, the bulls or the bears?” The answer five weeks ago would have been about 90% “Bears are more scared” as the Chinese stock markets were up nearly triple on the year. Today, I’m sure such a poll would come back 99% that “Bulls are more scared.” I’d personally rather be long than short the Chinese stock markets for the next week. Sentiment can be a great near-term catalyst for both bulls and bears when the fear gets extreme. That said, I still wouldn’t actually want to gamble much if any of my own hard-earned capital on any foreign stock market.”
Two days later and, no joke, Chinese stock markets just had their best two day rally since 2008, as explained by the FT today:
“The Shanghai Composite finished up 4.5 per cent on Friday, marking its biggest two-day gain — 10.6 per cent — since 2008. The tech-heavy Shenzhen Composite and the small-cap ChiNext board each added 4.1 per cent.
Only seven Chinese stocks fell while more than 1,000 companies hit their daily upward limit of 10 per cent, as investors rushed to buy whatever is still trading.”
So, my point is that once again our “Who’s more scared right now” concept worked wonders when it got extreme. At any rate, I wouldn’t hang around very long hoping that the Chinese stock markets continue to spike. 10% move over two days is plenty and yes, I wish I’d have taken a small flyer on some Chinese stock market ETFs or something on Wednesday, but…no looking back.
Now onto Apple
Apple’s quarterly earnings report will hit in 11 days on July 21.
On the one hand, iPhone sales are through the roof.
Here’s a great chart from Wikipedia that shows just how quickly the iPhone is still growing:
Most analysts are looking for Apple to have moved about 50-55 million iPhones over the last 90 days and those numbers are probably too low. I’m looking for closer to 60 million or more sold in the last three months. As an investor in Apple for the last 13 years, the only thing that’s really mattered to this stock has been the wild success of the iPhone (and to a lesser extent, the iPad and Mac). Do you think any analysts in 2010 pictured in the future that Apple could sell 75 million iPhones in one quarter?
The iPhone 6 and 6 Plus are two of the most popular products ever sold on the planet Earth. Seriously, did you know that Apple has sold more than 700 million iPhones since it rolled out back in 2007? The user base of iPhone/iOS is growing faster than ever before and is going to surpass half a billion active iPhone users this quarter.
And that leads us to the Apple Watch. Most analysts are looking for Apple Watch sales of about 3 million units, but the numbers have been coming down lately as I’m not the only one noticing the lack of consumer interest in Apple’s first attempt at Wearables.
Let’s put a little perspective on those Apple Watch numbers using that chart of iPhone sales. Notice that the iPhone itself, which we’ve already agreed is one of the most popular products ever sold, took six quarters before enough people were interested in it for Apple to move more than 3 million units. This is the Apple Watch’s first quarter of existence and Apple’s going to sell 10 times more units of it than it did in the first quarter of the iPhone’s existence when it sold less than 300,000 total iPhones. Think about that!
My wife and I both love our Apple Watches. But I don’t think the Watch is going to see more than a billion units moved over the next 10 years like the iPhone will by the end of its first decade. No matter that it’s off to a much bigger and better start than the iPhone saw.
I’ll also be tuning into the earnings report to get the scoop on how Apple Pay is doing. iPad and Mac sales are something to watch for also, the former likely coming in soft and the latter strong, despite the overall PC industry seeing a 10% decline in units shipped this year from last year.
All that said, the most important part of the earnings report and the catalyst for the stock after the call will be about whether or not iPhone strength will trump Apple Watch weakness.
With Apple shares down $10 in the last week and acting poorly into this earnings report, there’s a good setup for a $10 move or so after the report.
If iPhone sales are above 60 million, you’re probably looking at pop after the report. If iPhone sales are near 55 million or less, you’re probably looking at a $5 decline after the report. And if iPhones sales are close to 50 million and Apple Watch sales are lagging too, well, Apple could trade down to $110 or so after the report.
As you dear readers know, I’ve owned Apple for 13 years, buying it at $1 a share with my first purchases, and I’m still holding it. Nothing in the earnings report this time would make me sell it.
