Research indicates that there were between one and two and a half million pre-orders of Apple Watches. Given that it was only launched in Q2, Apple is unlikely to reveal the exact sales numbers for the watch in its results for the first quarter. However, it might choose to at its worldwide developer’s conference in June.

There were not the traditional long queues outside Apple Stores for the Apple Watch, but this is probably not through lack of demand for the product. Rather, it is because Apple’s new retail chief Angela Ahrendts only allowed pre-orders online, stores were just allowing prospective customers to try on some of the 38 different variations on the watch.

"Apple has limited supplies of the Apple Watch until it knows which models customers prefer"

The most avid apple fans love a good queue, so the policy-change is a risk to the product launch. Some people never have to wait in queues; celebrities including Beyoncé have been wearing a gold-strapped Apple Watch ‘Edition’ unavailable to the public.

When compared with the latest sales for the iPhone, the projections for the Apple Watch are a bit paltry. Any evidence of a supply bottleneck would be particularly bad because Apple must produce sufficient numbers of its new wearable device to meet early demand and help it catch-on while still in its infancy.

In all likelihood though, Apple has limited supplies of the Apple Watch until it has a better sense of which models customers prefer, while perhaps also minimising any damage associated with another “bend-gate” or “antenna-gate.”

Apple dispensed with the long queues and high fivers for the UK Apple Watch launch

Strong dollar impact on earnings

With its large international customer base, particularly in the UK and Europe, the strength of the US dollar is a threat to Apple’s first quarter earnings. Apple raised pricing outside the US, seemingly to offset FX effects. This will test the elasticity of demand for iPhones when lower cost Android-operated Smartphones are readily-available alternatives.

China has become one of the most important regions for iPhone sales and the Chinese yuan is pegged to the US dollar which negates any currency effects. In Europe, the economy is struggling and the euro has lost over 20% in value to the US dollar so the impact could be harder felt.

iPhone sales: Samsung-effect and product mix

In the fourth quarter, Samsung sales were in decline, and the iPhone 6 monopolised the high-end of the Smartphone market. Samsung have since released the Galaxy S6, deliberately designed as a “premium” competitor to the iPhone 6.

The risk is that customers get tempted away from the iPhone 6 by the lower selling price, helped by a better exchange rate and more advanced features of the Galaxy S6. If Apple can brush off competition from Samsung, it should give some cushion for Apple to raise prices abroad without impacting demand too heavily.

While iPhone sales are expected to remain strong, the product mix of iPhones may have shifted to lower cost models such as the 5c and may mean a lower average selling price (ASP) and profit margins. A drop in the ASP could spook investors but as long as the benchmark iPhone 6 maintains its pricing power, any drop in the ASP because of older models shouldn’t necessarily matter for Apple’s profit growth.

Share buyback

Whether Apple shares move up or down on the day of the earnings report may largely rest on the details of its new capital allocation plan, which is expected to replace the current $130bn plan.  Shareholders will be looking for Apple to put its large cash pile to use with a substantially bigger share buyback and dividend increase.

Expectations and valuation

Apple is expected to report earnings of $2.14 per share on sales of $55 billion up 29% and 22% over year respectively. Even at current levels Apple is only trading at a forward P/E of 14.6X, pretty much in line with its long-term growth rate of 15.5%.

With a price to earnings growth ratio of less than one, the shares appear reasonably valued and could respond positively to a strong report. Last time out, the shares surged to new highs after Apple’s earnings of $3.06 and sales of $74.6 billion came in way above street expectations of $2.60 and $67.5 billion.

Share price performance

For over a year, Apple shares have been under accumulation, steadily advancing in a staircase pattern of rallies followed by periods of consolidation at higher levels. The last earnings reported back in January kicked off a rally phase which saw the shares blast through $120.00 and drive on toward $133.80 before pausing.

For the last two months, the shares have been range bound, trading between $122.00 and $130.00, while RSI has been steady between 40 and 55 confirming sideways momentum. Higher lows through this period confirm underlying accumulation remains intact.

A positive report could spark another rally that could retest the February high near $133.80 or carry on toward $138.00 based on a measured move from the currently forming ascending triangle pattern. A miss, however, could send the shares back toward the base of the triangle near $122.00 or on toward the $118.80 to $120.00 zone where a Fibonacci retracement, previous breakout point and round number cluster together.

Jasper Lawler and Colin Cieszynski are analysts at CMC Markets