In July, Apple Inc. stock AAPL enjoyed a brief rally going increasing 4.3% from $126.60 on July 1 to $132.07 on July 20. However by the end of July, the price had dropped closing at 121.30 on July 31. This decline, which followed Apple’s Earnings release on July 21, preceded a more precipitous loss in the first week of August with a drop in price to $114.64 on August 4. Our question here is the degree to which the price decline was signaled by the market, even before the earnings release.
There is no shortage of reasons proposed for the loss of investor confidence in Apple. Primarily, investors seem to be concerned with China’s continued ability to drive iPhone sales, given expectations that the Chinese economy is set to contract. At the same time there has not been the expected consumer adoption of the Apple Watch. Additionally, there is a sense that the new iPhone (rumored to be called the 6S), will not have the upgrades necessary to compel as strong of an upgrade cycle as when the Iphone 6 came out. Finally, Apple has recently broken through some technical trading levels closely watched by investors and traders which have also contributed to the price decline.
It is worth noting that, since the beginning of the year, three analysts firms have downgraded the stock, with two of those downgrades (Bank of America Merrill Lynch and Cowen) coming in the last three weeks. The BAML downgrade from Buy to Neutral is grabbing headlines and an analyst at the institution has lowered Apple’s price target to $130 from $142.
Yet, while some of the price decline and prevailing negative investor sentiment is being driven by fallout from Apple’s earnings, reported on July 21, many of these conditions are not completely new. In fact, there were hints that investors were starting to grow a bit cold on the stock even before earnings, if you knew where to look. Hints abounded on social media chatter and sentiment was trending negative on Apple leading into earnings.
The chart below, created by Market Prophit , a social media financial sentiment analytics company, shows some key moments in investor sentiment, during July and August, as derived from stock-related chatter on Twitter. The chart shows two distinct groups: “The Crowd,” which is anyone who Tweets using the cash-tag: $AAPL, and the “Market Prophits”, a group of financial tweeters that Market Prophit quantitatively scores based on their commentary and identifies as having predictive stock tweets.
Applying Market Prophit’s proprietary analytics, we are able to distinguish between “crowd” sentiment and ”maven” sentiment and show the relative views of each group. We have found that looking at these two groups, where they diverge, and where they are similar, is often very revealing regarding inflection points in a stock price.
The chart below shows both the Crowd as well as the Market Prophit sentiment as well as Apple’s stock price. As can be seen below, the Crowd was quite bearish on the stock before the earnings announcement on July 21. And, while the Market Prophits were basically neutral mid-month, they began to “agree” with the Crowd on July 15th, shortly before Apple’s earnings came out. So both groups were decidedly bearish, 6 days before earnings and this preceded the ensuing strong price drop.
AAPL Social Media Sentiment and Stock Price
While both Crowd and Market Prophit sentiment signals can be predictive of stock price movements over different time frames, when there is strong agreement between the two diverse groups, it can be a confirmatory signal of potential price direction.
After Apple’s price fell dramatically and is currently hovering at $115, both the Crowd and the Market Prophit sentiment signal both continued to agree and are now trending strongly positively, possibly signaling a temporary bottoming of Apple’s price. One will need to continue to watch how sentiment is trending and how price evolves. But one important thing to note is that financial-related chatter in social media and the aggregated crowd-sourced sentiment derived from it can at times be predictive of stock price movements.
Out of 34 analysts polled by TipRanks, 22 analysts are bullish on Apple, 10 are neutral, and 2 are bearish. The average 12-month price target for Apple is $150.93, marking a 30.79% potential upside from where the stock last closed. On average, the all analyst consensus for Apple is Moderate Buy.