Need Help?  

1-888-998-3548 or 646-214-7240

Futures Trying to Shrug Off Apple (AAPL) Earnings

Scott Redler and John Darsie
Jan 24, 2013, 9:24 AM

 

US stock futures point to a mostly lower open Thursday, but have bounced off overnight lows and are trying to shrug off weak Apple (NASDAQ:AAPL) earnings. Yesterday the methodical melt-up in the market continued, but short-term momentum traders are scratching their heads a bit as the action has been very selective. Tech and small caps, which are often favorites of momentum traders, are not leading. You are seeing sectors like the banks and transports lead the charge, the latter being a sector intraday traders rarely focus on. Each cycle has different leaders and different groups, you just need to focus on the best set-ups.

 

During earnings season I prefer not to own equity in a stock before it reports. If I want to be involved, I generally take a look at some sort of calculated options strategy. Rather than making it a coin flip, I like to construct a favorable risk-reward scenario for myself with risk as premium paid. A paper cut is fine, but a gusher might be too hard to mend.

 

AAPL is down around $461 this morning, not showing much life heading into the open. The report showed a beat on EPS expectations but fell short on revenues and iPhone sales, two important barometers. The question here is, how much of this gap down gets filled, if any? This will help us judge the trade moving forward. If I do trade AAPL today, I will trade it a level vs. a level as I come in flat. My call spread is worthless, but that’s the cost of doing business if you risk $5 to potentially make $20.

 

Stock is below the $483 pivot, so the next major zone to watch is $440-450. Last night the after-hours low was $457.30, which we can use as a point of reference. This stock has been for sale for months, exhibiting relative weakness far before the report.

 

Back in December I was quoted extensively in a Wall Street Journal Article: Apple's Halo Cracked.

 

“The correction was faster and deeper than most traders expected,” Scott Redler, chief strategic officer at T3Live.com, said in an email to MarketBeat. Redler has been trading in and out of Apple stock recently. “I think investors are a bit more wary of Apple after that potent sell-off.”

 

“The news today created a perfect storm after technical analysis already pointed to lower prices,” Redler says. “Overall it seems the psychology of Apple has changed a bit — the perception is no longer that you can just buy all dips in Apple and close your eyes.”

 

The best scenario for me during earnings season is to see stocks gap up and hold the majority of those gaps. When gaps hold and we get a few days of consolidation at upper levels, it can sometimes lead to another tradable leg higher. By measuring the action in the days following the report, you can potentially tell you a lot about the next trade or trend.

 

Overall the market continues to do a good job shrugging off AAPL weakness. While we don't like to see leaders fall by the wayside, when other sectors pick up the slack it is healthy in the long-term. As far as levels on the S&P 500 ETF (NYSE:SPY) this morningm micro support is $148.86 then then $148.50, with the 8-day MA sitting at $147.98. Pivot resistance is now $149.50 with the psychological level at $150ish.

 

Netflix (NASDAQ:NFLX) was the other big name to report last night, and the company blew consensus estimates out of the water. The stock has a 24% short interest, and those shorts are getting squeezed in a big way following the report. The company was expected to lose 13 cents per share this quarter, but instead made 13 cents and guided significantly higher. The stock is up almost 40% after hours and above last year's high. I'd be careful with this one today as it could go either way; shorts could continue to get squeezed, or we could see some of the huge gap filled.

 

Google (NASDAQ;GOOG) and IBM (NYSE:IBM) reported after the close Tuesday and gapped up and held higher yesterday. These are examples of stocks in which we will watch how the gaps are treated. We like to see some digestion and sideways action to create another potential calculated buying opportunity.

 

IBM now has a nice gap to trade against as it creates a new range. The pivot low is $203.36 and the pivot high is $208.58. GOOG also a nice gap with a pivot low of $735.79 and pivot high of $749.

 

Facebook (NASDAQ:FB) had a nice bounce back but isn’t that compelling right here.. The stock still acts well overall, and it will be key to see how it handles earnings on January 30th. LinkedIn (NASDAQ:LNKD) is trying to break out, but also might need earnings to break out.

 

The transports are a sector I am looking at for a potential cute short trade. I don't typically like to short strong stocks or ETF's, but I could look for calculated reversal signals to add to a short in the Transports ETF (NYSE:IYT).

 

Looking to get educated on how to trade earnings season? Take a 5-day free trial to any one of our mentoring rooms.

 

 

*DISCLOSURES: Scott Redler is long LNKD, GE, WMT, MGM, DBC, CAT. Long AAPL 520 and 525 calls, short AAPL 540 and 550 calls. Short SPY, IYT.

 

Last Updated ( Thursday, 24 January 2013 10:20 )
Banner
Banner
© 2012 T3 Live, LLC
  1. T3 LIVE, LLC is NOT a Broker Dealer. T3 LIVE, LLC engages in trader education and training. T3 LIVE, LLC offers a number of products and services, both electronically (over the internet through T3LIVE.com) and in person. Through T3 TV, an online video network that is available through T3LIVE.com, T3 LIVE, LLC provides LIVE pre/post market and stock analysis. Through T3LIVE.com, T3 LIVE, LLC offers the "Virtual Trading Floor", a community through which independent traders (subscribers), as well as select T3 Trading Group, LLC Traders, observe a virtual trading floor environment (as described below) for educational purposes. T3 LIVE, LLC also offers web-based, interactive training courses on demand.
  2. Subscribers are able to see if traders are long or short and what symbols as part of best practices in regards to disclosure. Subscribers do not see trader' screens, trades or size of positions. T3 requires traders to disclose whether they are long or short and which stocks they are trading to ensure that the community is fully informed and that traders substantiate their opinions. This approach is modeled after the analyst disclosures that accompany commentary on particular stocks on CNBC or other financial news media (as per FINRA Rules 2210 and 2711).
  3. The seminars given by T3 LIVE, LLC are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
  4. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE, LLC or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.
  5. The videos and blogs shown on T3 LIVE, LLC are for informational purposes only. The investment ideas and expressions of opinion may contain forward looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell securities. T3 LIVE, LLC statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio.
  6. T3 LIVE, LLC and T3 Trading Group, LLC are separate, but affiliated companies.
  7. T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX www.CBOE.com). All trading conducted by contributors on Virtual Trading Floor is done through T3 Trading Group, LLC. For more information on T3 Trading Group, LLC please visit www.T3Trading.com.
  8. Global Trading Plus, LP (“GTP”) is the exclusive provider of T3 LIVE, LLC products in Europe, all the former Soviet Republics (dating back to 1991), and Israel. GTP is a separate company and has no common ownership with T3 LIVE, LLC, T3 Trading Group, LLC.