Why the smackdown in Apple (NASDAQ:AAPL)? While December quarter results were largely in line with expectations, the bigger concern was guidance. The March quarter outlook (including gross margin guidance) was well below the Street estimate, providing some credibility for recent reports about order cuts. In addition, the company announced a shift in strategy, noting that guidance should no longer be considered conservative and will instead be set at levels the company is likely to achieve.
I do think that the 12.4% sell-off yesterday in Apple was overdone, and there is room for a bounce — but let’s see the reaction when trading begins today. I have been studiously avoiding Apple for my Trader’s Advantage subscribers after my research suggested that it made at least a two-year high at $705 in October last year. But there is a big difference between $465 and $700. You could have a 15% bounce that doesn’t even make a dent in the decline.
The Apple Factor
Analysts at Bespoke Investment Group published an interesting study Thursday afternoon on which major stocks tend to augur success in the broad market following their quarterly earnings report.
The analysts had earlier in the week published research showing that when IBM‘s (NYSE:IBM) quarterly report is seen positively by investors and shares trade higher, the market tends to outperform over the next three months. And vice versa; if IBM plotzes the day after earnings, the rest of the market tends to follow suit. That certainly was the case in the October-December period, just for one example.
The fact that IBM gapped higher yesterday after earnings and stayed up should thus be taken as a good sign for further gains to come, all other things being equal.
So how about Apple? Well, a lot of people were out on Twitter and TV saying that Apple’s 12.4% wipeout was a “canary in the coal mine” for the rest of tech. But the data does not agree.
Bespoke notes that in the 17 prior reports when Apple traded lower after earnings, the S&P 500’s performance in the next five weeks has been positive 14 times. That’s roughly 82% of the instances, which is high for studies like this. Moreover, after the two prior quarterly earnings reports where Apple traded down more than 10%, which were July 16, 2002 and Jan. 22, 2008, the S&P 500 actually saw gains of 4% and 5.4% in the next five weeks!
Of course you can’t say that Apple’s humiliation yesterday was a good thing, but at least history does not suggest that it should be taken as a foreshadowing of woe for the rest of the market either.
InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days.
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