Brocker.Org: Apple Suppliers Take a Hit After Earnings Miss

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Apple, Inc. (AAPL) missed revenue estimates by a small margin in the first quarter of 2017, selling fewer than expected iPhone 7s despite intense buying interest that followed the smartphone’s September 2016 release. The unexpected shortfall is set to impact price action in the company’s supply chain, with providers of chipsets, screens and other high-tech components of Apple products taking potential hits.

Apple’s ecosystem is extensive, with more than 200 companies feeding on the latest version of the iconic mobile device. New suppliers often trigger momentum rallies, marked by traders jumping on the announcement while selling departing companies aggressively. Three long-time suppliers stand out on the high-tech list, with stock prices closely levered to product sales.

Skyworks Solutions, Inc. (SWKS) topped out at $78.25 at the height of the Dot.com bubble and spent most of the last decade trading in single digits. It broke out of a multi-year basing pattern in 2009 and headed higher in a strong uptrend that reached the multi-decade high (red line) in January 2015. The stock topped out near $113 in June of that year and entered a rounded correction that’s been testing new support for nearly two years.

A January 2017 breakout above the red line reached the .786 Fibonacci selloff retracement level and round number resistance at $100 in April, giving way to a reversal that could break a three-month rising channel (blue lines). That event would set off bearish technical signals, raising odds that price action has posted a lower high within the broad corrective pattern, opening the door to a decline that fills the big gap between $80 and $85.

CRUS

Old school chip manufacturer Cirrus Logic, Inc. (CRUS) topped out at $61.13 in 1995 following a long uptrend and sold off into single digits. A 2000 bounce stalled 13-points below resistance, yielding a severe downtrend that kept the stock near historic lows for more than 6-years, ahead of a 2009 uptrend that reached within a few points of the 2000 high in 2012. It spent three years testing that level, ahead of a 2016 breakout that lifted above the 1995 high in February 2017.

The stock is vulnerable following Apple results, trading just a few points above the 22-year peak because it’s still testing that lofty level. A steep pullback after the February buying spurt tells us that aggressive sellers are waiting in the wings, trying to end the uptrend with a massive double top reversal. The 50-day EMA looks like a major inflection point in this conflict, telling market players the stock needs to hold above $60 to retain its highly bullish tone.

ADI

Analog Devices, Inc. (ADI) charged higher throughout the 1990s, splitting four times into the 2000 all-time high at $103. It underperformed for the next decade, just like the other entries, also turning higher in 2009. That uptrend has continued to add points for the last 8-years, but the stock is still trading more than 25-points under multi-decade resistance after the latest buying wave stalled in the 80s in March, giving way to a sizable decline.

The first quarter reversal unfolded at the .786 Fibonacci selloff retracement level, just like Skyworks, with this odd convergence adding a bearish note to future projections due to that level’s well-earned reputation for stopping rallies dead in their tracks. It’s now likely to test support at the 200-day EMA near $70, with a breakdown opening the door to a broader scale topping pattern.

The Bottom Line

Apple sold fewer than expected iPhone 7s in the first quarter, with the results putting pressure on its vast supply chain. Price action in these three suppliers could set the tone for the rest of the group, with shareholders forgiving the company for an unexpected miss or taking profits because the growth trajectory has waned.

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