What a Tangled Web – Apple’s Earnings – What’s Next For the Markets

A funny thing happened on the way to Apple’s first quarter report – they beat estimates, announced a $60 billion share buyback plan, discussed a “significant increase” in its capital return policy, which will total $100 billion by 2015 and raised the quarterly dividend to $3.05 a share.  So why is the stock lower, albeit, slightly in after hours trading?  It is all about guidance and disappointing the pundits, err I mean analysts.  Apple gave revenue projections for the quarter ending in June of between $33.5 to $35.5 billion.  The pundits, oh sorry again, I mean analysts had been looking for revenue of $38.6 billion. 

Could the public’s fear of the economic recovery stalling actually be grounded in substance?  I mean Apple only sold 85 million iPhones and 42 million iPads over the first half of their fiscal year. Ok, CEO Tim Cook did admit that Apple’s growth rate has slowed and margins have decreased and the decline off of $700 has been frustrating to “all of us.” But yet, the fact that Netflix may continue to roll in the viewers via it’s new self produced rooster of series, (yes at the moment it is only one but hey come on give a guy a break), over the mid to long-term produced a 22% rally in the stock.  Oh what a tangled web we weave!

Taking a look at the markets the signs of exhaustion are beginning to show up again.  This is not good, and despite the overflow of decent earnings reports I’m highly suspicious that it just won’t be enough to push the broader indexes to new highs this time around or if it does I wouldn’t be looking for much follow through.

In a previous blog I discussed the markets putting in larger corrections off of April highs.  This remains in the near-term picture and should new highs (DJIA, S&P 500 and maybe Russell 2000) come first it would suggest more of a rough ride down as the correction rolls through.  Again, a 10 to 20% down draft is not out of the picture, in fact the signs are pointing to the next leg down ready to begin at any moment.

Restated Dynamics (Support levels) for the Correction

With most of the broader indexes pushing up against Fibonacci .618 resistance, the “ducks” seem to be quacking as they say.  If the correction is still in force, additional upside should be held to basically current levels before the next leg down begins:

DJIA – is sitting just above resistance at 14717 and this level (area) should contain upside before the market begins to break down.  As we saw today (during the mini-flash crash) support at 14550 was basically reached quickly.  – there remains support at the 14500 to 14450 area, but eventually downside momentum will prevail with stronger support coming in at 14400 to 13750.

S&P 500  – Resistance at 1574 was breached, but I suspect current levels should contain follow through upside if the market is going to break to the downside. Stronger support lies below between 1525 and 1475.

Russell 2000 – Resistance at 929 was tested today, at this point look for it to contain upside before a break lower begins.  Ultimately, it remains highly likely that  it could get very ugly for the Russell 2000 with stronger support seemingly far below at the 850 to 820 area. 

Day Trading vs. Position Trading

Recent discussions have revolved around the necessity to toss out most if not all of your old trading ideas and join the ranks of algorithmic trading.

I advocate the use of overbought/oversold indicators and momentum oscillators to indicate where money is flowing, where an imbalance of buyers or sellers occurs and a  “bull trap” or ”bear trap” forms.   

I believe that it only gets more confusing going forward as the market ignores “the writing on the wall” and continues higher with a false sense of security built on negative input.  Price volatility has increased with the broader averages easily moving 2 to 3 percent and as high as 10 percent intraday.  Many stocks have seen daily trading ranges average between 10 and 15 points, with one day being 15 points higher and the next being 10 points lower. 

This type of action is the primary motivation behind my advocating switching strategies if necessary and focusing on day trading and less on position trading.  I do believe there are discernable longer-term positions investors should consider and implement, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk. 

I continue to recommend the best trading platform available to a broader range of traders from novice to expert.  The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.  

Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility.  Automated stop-loss management and position sizing eliminates most of the problems most individual traders have.  Day trading and position trading both require (actually demand) good risk management.  Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades. 

Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

• DJIA future (e-mini available)
• S&P-500 future (e-mini available
• US$/Euro futures (e-mini available)
• GS (Goldman Sachs)
• AAPL (Apple Computer)
• GOOG (Google)
• LNKD (LinkedIn)
• NFLX (Netflix)
• 30-yr Treasury Bond future
• 10-yr Treasury Note future
• TLT (Treasury Bond Long ETF)
• TBT (Treasury Bond Short ETF)

The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in Gold and Silver futures, GLD and SLV – gold and silver ETF’s and several mining stocks.