Premarket: Apple is red

apple premarket red 9-20-21From the Wall Street Journal’s “Stock Market Futures Fall on Chinese Property Fears” posted early Monday:

U.S. stock futures fell, pointing to an extension of recent losses on Wall Street as concerns regarding China’s indebted property sector rippled into global markets…

The broad retreat came amid concerns over property developer China Evergrande Group. Market participants increasingly believe that Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders. The company’s debt burden is the biggest for any publicly traded real estate management or development company in the world.

Hong Kong-listed shares of Evergrande, which said Sept. 13 it was facing unprecedented difficulties, tumbled more than 10% to their lowest closing level in a decade. The Hang Seng Index dropped 3.3% to its lowest close since October. Mainland Chinese markets were closed for a holiday.

Property firms including Henderson Land Development, New World Development and Sun Hung Kai Properties also retreated more than 10%. Technology stocks pulled back, as did shares of financial firms such as China Merchants Bank and Ping An Insurance Group.

“Everyone is looking at Evergrande and saying ‘has the time come for a major default in that area, and then the potential for contagion into the broader property sector?’” said Edward Park, chief investment officer at Brooks Macdonald. “It’s an imminent risk now rather than being a theoretical risk as it has been for the past few years.”

My take: When the Chinese cleaver stops falling, we may have a buying opportunity.

18 Comments

  1. Gregg Thurman said:
    Only a 10% “tumble” after “being a theoretical risk as it has been for the past few years.” While it can certainly drop more, it looks like the drop is mostly baked-in.

    1
    September 20, 2021
  2. Gregg Thurman said:
    $144 is shaping up as the pre-market low for today. How much of AAPL’s decline can be attributed to china’s mortgage market. Looking at the world’s exchanges (lots and lots of red) I think the fear of a spreading contagion reminiscent of the 2008 banking crisis may be at work.

    Be that as it may, I’m cautiously looking at the SEPT 24 $139/$140 Call Spreads. An alternative trade would be the SEPT 24 $147/$146 Put Spread.

    I’m conflicted about AAPL’s direction. With an RSI of 44.xx (slightly oversold) and having declined about $13.xx in the last 10 days AAPL may have bottomed.

    Like I said previously, I’m going to sit on my hands until at least 10 AM EST before doing something (if anything).

    3
    September 20, 2021
  3. Greg Lippert said:
    I am surprised that at the depth of the sell off given the strength of iPhone preorders. Q. How far will it go? A. Farther than what seems rational.

    3
    September 20, 2021
    • Bart Yee said:
      @GL
      Proving again the old saw “who ever said the stock market was rational?”

      AAPL is bobbing along on the tides of external events. Money will flow out of AAPL and many other stocks, meaning it will sit on the sidelines, building. When this dip works it’s way out, that sideline money will look for either risky ways to rebound, or rock solid conservative investments. I believe Apple to be the latter with growth built in easily. But it takes vision to see that, something that Wall Street seems to have little of, or has much myopia and astigmatism.

      1
      September 20, 2021
  4. Gregg Thurman said:
    $144ish support just died.

    1
    September 20, 2021
    • Bart Yee said:
      @Gregg. The silver lining is Apple (and all investors) will have sub-$143-144 shares to pick up, a nice 9% discount from ATH. $141.53 is the 10% drop threshold.

      1
      September 20, 2021
  5. Daniel Epstein said:
    My long time impression is Apple trading around 10% below its all time high or even lower is typical when there is no story to drive it higher. Now the reasons for this are usually not due to companies actual sales performance or future prospects. This last weeks action feels familiar if disappointing.

    1
    September 20, 2021
  6. Jerry Doyle said:
    Many economic headwinds prevail in the USA: Delta variant, Fed forthcoming tapering, inflation, negotiations over debt ceiling, supply chain disruptions, etc. Now we have the long feared Chinese real estate bubble burst and the ramifications it can have on the global economy.

    It puzzles me that Beijing would allow Evergrande to implode in the absence of some form of restructuring. Evergrande’s implosion would start, seemingly, a contagion chain reaction through the rest of China’s shadowed banking economy leading to a complete domestic economic collapse. Certainly Chinese officials understand this fact. Evergrande is too big to fail. It would seem the CCP’s worst nightmare would be to allow Evergrande to implode.

    0
    September 20, 2021
    • John Konopka said:
      And we have some potential upsides. More and more people are getting vaccinated. The economy is improving. Earnings will be announced in five weeks or so. We still have one more Apple event to look forward to. iPhone sales seem robust.

      0
      September 20, 2021
  7. David Baraff said:
    We are kind of due for a pullback. They come along with a vengeance to AAPL every few years, so I won’t be surprised if a period of “irrationality” sets in for a while and or we drop a good bit lower, like into the low 130s.

    Even that kind of a drop would be mild with has happened before, many many times.

    1
    September 20, 2021
  8. bas flik said:
    is not good for future iPhone sales in china.
    but chinese government can do what ever they like with any company
    this stays in china and is not connected to rest of the world. accept a few investors.

    0
    September 20, 2021
  9. Jerry Doyle said:
    It is true this is a China event, but if this default is allowed to happen then most certainly the contagion spreads throughout the PRC and trickles into the global economy more then we may anticipate. Here’s the thinking I agree with that I found in “MarketWatch.”

    “…. One of the best ways to think about China is that it’s a country, but it operates like one large company,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

    While there are “private” banks and corporations, in the end the Communist Party effectively ‘owns anything and everything’ if it wants to, he wrote.

    ‘And because of that, there really isn’t global contagion risk with Evergrande because in the end, and as far as we know, the loans to Evergrande were made by Chinese banks that are implicitly backstopped by the Chinese government, and the Chinese government’s balance sheet can easily handle the Evergrande losses which are valued around $303 billion of liabilities,’ he said.”

    1
    September 20, 2021

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