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What Does HSBC’s Downgrade Mean for Apple’s Investors?

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Apr. 10 2019, Updated 1:09 p.m. ET

Apple’s investors

This year began on a terrible note for Apple’s (AAPL) investors as its CEO, Tim Cook, made a downward revision to its fiscal 2019 first-quarter guidance in a letter to investors on January 2. The news triggered a massive sell-off in AAPL, which fell 10.0% on January 3.

Apple’s loyal consumer base soon made investors confident about Apple’s ability to maintain financial growth, which helped its stock end the first quarter with a 20.4% gain compared to the 13.1% and 16.5% gains in the S&P 500 Index and the NASDAQ Composite Index, respectively.

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HSBC downgrades Apple

According to Thomson Reuters, HSBC (HSBC) downgraded its recommendation on Apple stock to a “reduce” from a “hold” on April 10. In contrast, the bank raised its 12-month price target on Apple to $180 from $160. At the end of the day on April 9, Apple stock was trading at $199.50, nearly 10.8% higher than HSBC’s new price target.

HSBC’s downgrade on Apple comes at a time when its stock has rallied in nine out of the last ten sessions.

At the end of February 2019, AAPL made up ~9.61% and 3.34% of the Invesco QQQ Trust, Series 1 ETF (QQQ) and the SPDR S&P 500 ETF (SPY), respectively.

Is a trend reversal possible?

After the recent rally in Apple stock, some of its key technical indicators are showcasing signs of a possible reversal in its price trend. Its 14-day RSI (relative strength index) is hovering near 74.6, near overbought territory, with a divergence from its recent price action. Note that an RSI indicator’s divergence from a stock’s price action could act as an early sign of a possible reversal.

Apple stock’s 50-day simple moving average is hovering well below its 200-day simple moving average, reflecting weakness in its medium-term price trend.

Apple is scheduled to release its fiscal 2019 second-quarter earnings results on April 30. Concerns about the company’s falling iPhone sales could continue to haunt investors ahead of the company’s second-quarter earnings event, which could keep its stock mixed to negative in the coming weeks.

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