Apple Inc. faces $200 billion selloff, marking most oversold condition since 2018

Key Takeaway

• Apple Inc. faces a $200 billion selloff, dropping 14% from a peak and 12% YTD, marking its most oversold condition since early 2018.
• Despite the selloff, Apple's shares trade near 25 times estimated earnings, with options traders showing optimism for tech stocks.
• Short sellers gain $606 million in February from Apple's decline; however, its moderate correlation to the S&P 500 suggests broader market resilience.

Stock Decline

Apple Inc. has faced a challenging start to 2024, with its stock plummeting 14% from a recent peak and dropping 12% year-to-date. Concerns over iPhone sales in China and a fine from the European Union have contributed to the stock's decline. The recent six-day drop has wiped out over $200 billion in market capitalization, leading analysts to label the stock as the most oversold in years.

Michael Toomey, head of TMT trading at Jefferies LLC, highlighted the stock's prolonged underperformance relative to the Nasdaq 100, stating, "feels like every day we get another negative AAPL datapoint, and it’s not particularly cheap." Jefferies noted that the relative strength index of long Apple positions versus short positions in the Invesco QQQ Trust Series 1 indicates that this is the most oversold AAPL/QQQ has been since early 2018.

Technical Analysis

Bespoke Investment Group LLC pointed out that Apple is more than three standard deviations below its 50-day moving average, indicating extreme oversold conditions not seen since March 16th, 2020. Despite the recent weakness, Apple shares continue to trade near 25 times estimated earnings, above their 10-year average multiple of 19.

Options traders have shown little fear amidst the selloff, with implied volatility for three-month options picking up slightly but remaining within the middle range for the past year. The put skew, measuring the premium for protection against a decline, is holding near a two-year low, reflecting broader optimism about major technology stocks.

Market Sentiment

Traders are closely monitoring Apple's stock as it hovers below key support levels, with concerns that further weakness could impact the broader technology sector. Short sellers have capitalized on Apple's decline, making it the second-most profitable short position in February, with $606 million in paper profits.

Despite Apple's struggles, its correlation to the S&P 500 remains moderate, indicating that the broader market may continue to rise even if Apple faces further downside. From a technical perspective, as long as Apple's stock maintains its multi-year uptrend from 2020 lows, the overall market outlook remains positive.

Street Views

• Michael Toomey, Jefferies LLC (Neutral on Apple):

  "At some point this hate is going to be too much, and most oversold in six years seems like a good place to start... feels like every day we get another negative AAPL datapoint, and it’s not particularly cheap."