Market action brought the indexes to nearly match old highs this week, only to see prices fading away from those highs as the trading came to a close for the week. In the midst of traders trying to find enough courage to buy at all-time high prices, the CBOE Volatility Index (VIX) shows that traders are still reflecting on their fears of falling prices as they pay for market insurance in the form of call and put options.
The VIX has moved lower recently to reflect the rise in prices; however, another exchange traded fund (ETF), the iPath S&P 500 VIX MT Futures ETN (VXZ), which tracks the 90-day forward-looking futures on the VIX index, remains unusually elevated. Commercial traders who use these instruments appear to be factoring in the possibility that something may roil the markets in the next month or two – most likely events associated with U.S.-China trade negotiations. This nervous disposition is also reflected within investor behavior on individual stocks.
Goldman Heckles Apple TV Accounting
Goldman Sachs analysts reported its opinion today that Apple Inc.'s (AAPL) plan to account for its new Apple TV+ product may have a material negative impact on the company's quarterly results. Goldman predicted that a hefty 24% drop is possible in share prices. The key problem, the analysis contends, is that Apple plans to count the free trial of its Apple TV+ product as a discount off hardware purchases.
The analysts contend that, because the service will be offered free for one year after customers purchase new Apple hardware like an iPhone or iPad, it will amount to a $60 discount off the average selling prices of these items. This discount will in turn create lower profit margins. Apple published a contradictory rejoinder during the day, as if to say "investors will be smart enough to figure out what's going on." Goldman had no comment. Meanwhile, the stock retreated from its highs, similar to way the indexes did, leaving investors to wonder who is right about the issue.
Software Industry Oddly Not Participating in Recent Rebound
Software stocks have had a good year, and with Adobe Inc. (ADBE) about to announce earnings, investors might be interested to see what gains could be made in the fourth quarter. However, that sentiment might be better off delayed for a little bit. Investors might want to consider the price pattern being made by a software-industry-tracking ETF, the iShares Expanded Tech-Software Sector ETF (IGV).
This chart shows price weakening along an upward trend. Like a low-flying jet riding just above tree tops, this issue wouldn't need much of a drop to send it crashing down. Adobe's earnings report could be that catalyst. For all anyone knows, the company may have great news and investors might lift the stock higher. However, if not, its fall could be precipitous enough to weigh on many other industry members as well.
The Bottom Line
Markets backed off their nearly historic highs as traders and investors alike showed underlying fears of sliding prices. Apple investors have multiple reasons to be concerned. Software stocks look vulnerable, just as Adobe is preparing to report earnings in the upcoming week.
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