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Apple could head toward bear market as it faces more than just iPhone worries

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Trading Nation: Apple in correction territory

Apple's had a rotten few days, and one market watcher sees more trouble ahead for the world's largest company by market cap as concerns over iPhone demand mount.

"It's about slowing sales within the emerging markets, within China, that's the concern," Chad Morganlander, portfolio manager at Washington Crossing Advisors, told CNBC's "Trading Nation" on Friday.

Revenue generated in China has accounted for a larger portion of total sales through this decade, but growth hit a worrying hurdle over the past two years. Sales in China fell by 7.7 percent in its September-ended fiscal 2017, following a more than 17 percent decline in fiscal 2016. China accounts for roughly one-fifth of total sales.

"What's baked in is the future forecasted growth of this year and next year but what's happening in 2022? And that's where the valuation problem happens," said Morganlander.

Apple currently trades at a lower valuation than the broader market. Its shares are 13.5 times forward earnings, below the 16.5 multiple on the .

At these levels, and with future growth uncertain, Morganlander adopts a cautious approach to Apple.

"We would have a hold where we would not be entering the situation at this point in time. We would look for a better entry point perhaps 10 to 15 percent below where we are today," he said.

A 15 percent drop from Friday levels would put Apple's stock at around $140.86, and place it firmly in bear market territory.

The tech giant tumbled into a correction Friday on worries over weak iPhone sales in its June-ending quarter. Morgan Stanley sees a high possibility June quarter estimates among investors will be revised lower when Apple reports its March quarter on May 1. Apple is now roughly 9 percent lower than a 52-week high set in March, putting it below the 10 percent threshold indicating a correction.

If Apple shares take another leg down, Piper Jaffray's Craig Johnson sees one crucial level of support.

"If you look at the uptrend support line off of the mid-2016 lows, we're retesting that level right now at about $165. We're also retesting the rising 40-week moving average or 200-day moving average on the shares also," Johnson, the firm's chief market technician, told "Trading Nation" on Friday.

"A break below this kind of $165 area violates not just one but two technical support levels and would leave the next area of support for the stock at about $154 lows which is the lows we'd seen in February this year," Johnson said.

Apple last traded at $154 on Feb. 9 during a large market sell-off. It has not closed below that level since October.

Its stock was up 0.5 percent on Monday, recovering a level above $166 again. Friday's sell-off of more than 4 percent was its second-worst day of the year. It remains lower for the year, one of roughly two-thirds of the Dow Jones industrial average to trade negatively for 2018.

Disclaimer

Disclosure: Chad Morganlander nor Washington Crossing Advisors has a position in AAPL.