Netflix ($NFLX) is set to report Q1 results tonight after the close with consensus at EPS of $0.03 on Revenue of $1.965 bln.
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AAPL
Q4 Recap: IBM beat on Q4 non-GAAP EPS of $4.84 vs the $4.81 Capital IQ Consensus and reported revenues in-line at $22.06 bln.
With a large portion of the east coast snowed in today and this past weekend the oil markets received an anticipated boost heading into the weekend. That said, oil's 13+% rally in just two sessions was eased heading into todays session. With traders taking their risk off the board and with the SPX making a technical bounce, some investors were quick to call a temporary bottom in oil. As I type this however, oil is making session lows and looks to test the 30 level shortly. One of two events needs to occur for bullish traders on this busy week.
- Oil and the markets diverge and subsequently trade independently of one another (unlikely)
- Oil actually finds a temporary bottom and buyers step in with a little more conviction
BUSY WEEK
This weeks busy earnings season kicked off with McDonalds (MCD) and Halliburton (HAL) beating street estimates. However for HAL North American revenue declined by about 28% year over year and operating income dropped from $5.1 billion to an operating loss of $165 million. This read through gives us a term that we've grown all too familiar with; "Revenue recession."
D R Horton (DHI) Posted a beat on earnings with a slightly higher-than-expected profit along with a rise in orders for the last quarter of the year. However, investors focused on DHI's growth rate which was the slowest since the fourth quarter in 2011. Even with earnings providing themselves as a catalyst of sorts, equities can't seem to get out of their own way as investors line up to exit stage left.
Tomorrow we get a further read as P&G, J&J, Coach, and 3M give us their results in the morning. At&t, Capital One, Stryker, and of course Apple cap off the evening. That sets us up for a Wednesday which includes a myriad of more earnings reports and a Fed Statement that should keep everyone on their toes.
800 LB Gorilla Named AAPL
AAPL is set to release numbers on Tuesday night after the bell amid a horrible tape and an underperforming issue since failing near its top in July. Everyone and their brother has an opinion on this stock and the issue has not been able to get out of its own way for months.
Since July, the stock has seen its price cut by over 33% falling as low as $93 (excluding flash crash in August). With that fall, and with analysts slashing targets (albeit not dramatically) the stock finds itself in a peculiar place. Either analysts need to revise their estimates more and slash their targets even more dramatically, or AAPL is unfairly being discounted relative to the market because investors are no longer seeing it as a beacon for growth. If we strip all of that out and strictly look at AAPL as a technical play, here's what we get.
With the stock in a downtrend and a head and shoulders on the monthly and weekly, there really hasn't been much reason to own AAPL for the last half year. The stock has however presented an opportunity with the $93 test from last week. The test of the 93(ish) level was the 2012 high and a solid retrace back to it from all time highs. Coincidentally, on that test AAPL also gave a 50% retrace from the bull run it's enjoyed since 2013. In addition, the monthly 50MA sits just below that level at ~$90. With all these indications, and a refresh cycle year for the iPhone, it would be foolish to remain staunchly bearish on this beast. If you can afford it, a risk reversal would be an interesting way to play this name heading into earnings.
AAPL Monthly head and shoulders but sitting right above the 2012 high retest support
50% RETRACE
BIAS: Bullish with 92 stop (or 90 if your tolerance/timeframe is higher)
“The fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.”
If the Wall St. narrative runs its course, something definitely has to give with AAPL. The issue, which has traded poorly since making an all time continues to do so. If you have not yet, you should start to consider what your threshold tolerance for pain should be.
What was once a market leader, AAPL has certainly underperformed its peers this year. With stocks like AMZN NFLX and GOOGL all up substantially YTD it is only fair to wonder what is happening with AAPL (the stock, not the company). Before I dive in a little deeper I want to stress that I am a big fan of the company and believe that they are the most soundly run company that I've ever encountered. I liken Apple as the A student in the class. Eventually, the teacher gets accustomed to that student's stellar results and starts to only make commentary on his/her "poor" (A-) performance. The opposite is also true. There will always be students that are B/C students and when they start to perform up to the B/A level the teacher will be impressed more so than when the A student continues to make his/her marks. Let's focus on this first.
As humans, we're psychologically wired a certain way. Specifically, we like to believe that we are the purveyors of information and that we actually know more than our peers. Ironically however, it takes those same peers for us to get anywhere typically. That's why shit stocks like TWTR continue to find fools as they continue their landslide lower. In order for a market to be made, you need liquidity. In order for liquidity to exist, you need people on opposite sides.
It is very important to distinguish between Apple the company, and AAPL the stock. As I said above, the company is likely the best one we've ever seen and will ever see in our lifetime. Currently however, the stock is not. As highlighted a multiple times and most recently a week ago, the stock is currently and has been trading poorly. It does not matter what time frame you use on a chart, it is tough to find viable support in the issue. That said, that's not the biggest problem the stock may face. I use the word may because this company has been founded on innovation and can turn the corner at any point and regain their innovative ways. We can all speculate what we believe is in their pipeline, or what cutting a particular supplier may do, but at the end of the day we simply do not know.
GETTING "OVER"
Aside from poor performance and relative weakness to its peers, AAPL has another hurdle it may have to overcome. Up until now, the stock is still endeared in the eyes of Wall St. analysts. With 47 Buy ratings, 7 Holds, and 1 Sell, the stock is still heralded. Though this works in the favor of the company currently, it may end up "taking a bite" out of the stock in the future (if things precipitate to the downside).
Let me put that statement in basic terms for you. Currently, basically everyone and their fucking brother is positive on AAPL, and the stock still can't seem to perform. What happens when people who have been bullish all of a sudden get tired of the bull case and switch their tune? If the stock is not performing by then, it will likely start to really crumble.
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Another past positive and potential clusterfuck for them is the ownership stake by Carl Icahn. Upon announcement of the stock purchase, the stock rallied, and rallied hard to eventual all time highs. Icahn indicated that this purchase was again a "no brainer" like his NFLX transaction. Though this may be the case, the stock's performance has not been that way. So it will be interesting to see where he goes with this trade moving forward given quickly rising poor market sentiment.
THE SKINNY
At this point many speculate that part of the problem with how AAPL has been behaving/performing is in part due to their potential that this will in fact be the first holiday quarter in which the company does not see iPhone sales increases. Put another way, this will be the first time (allegedly) where the company sees a slowdown in iPhone sales year over year (COMPS).
That said, the stock is still cheap. Trading at <10x EPS. At this point it really depends on what type of investor/trader you are. If you are of the speculative variety and look for quick hitters, this is probably not the stock for you. If you are looking for value and for potential long term growth, this could soon provide you with the "no brainer" opportunity many see/saw in the stock. In my eyes, the stock is currently a "no touch" until it proves the 105/103 support zones are for real or clears 122.
As always, if you found any of this useful please share. Cheers!
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““Men who can both be right and sit tight are uncommon.””
In the previous post we discussed the first known bubble (Tulipomania). In this post we will assess other more tangible examples that should help you forget the notion of "Now or never" with stocks you want to purchase.
BUBBLICIOUS
We've all at one point or another tried to blow the biggest bubble we can. We dance that fine line of trying to get it as big as we can without it snapping gum back in our face. The analogy of a bubble is quote symbolic, and in turn, quite perfect. When you're first blowing a bubble it takes quite a bit more effort than it does to actually pop it at the end. That said, there is also an inflection point where it doesn't take much effort to actually make the bubble get bigger. Physics takes over and the volume inside the bubble is optimal for growing it. That is of course until it's not.
If you recall from the previous installment we talked about the first known bubble, Tulip mania (or Tulipomania). Since it's hard to grasp relative to today's terms let's use stocks and indexes to illustrate what a bubble looks like and what happens when the gum snaps.
.COM (1995 - 2001)
Sure many of you have heard of the .com boom/bust but how many of you have actually taken the time to investigate just how big it really was? Fear not, we'll take a look at some of what went down during that era.
The point to take away from the above is not that there is any prediction about a foredooming situation in the markets. The point is that when markets start to break the accelerant behavior of the market selloff is vastly greater than the rising behavior in an uptrend.
Let's take a look at some individual names from the .com bubble. Most of these companies still exist today.
Some of these companies eventually recovered (AMZN AAPL) but most do not and never do.
HOUSING SUB PRIME
Soon after the dot com bubble dust settled we were in the middle of yet another cataclysmic bubble, the housing bubble. In many cases this was significantly worse than the dot com bubble because it impacted many sectors across the board and scarred many investors for years to come. Some of the stocks that were resilient through the .com collapse (namely banks) were absolutely obliterated after the housing crisis. Unlike tech stocks that were a “new paradigm” the housing market was built on the notion that “everyone needed a home” and that homes and investment property in general functioned as a “store of value” which was infinitely “safer” than the bogus paper of the .com stocks. Just like tech stocks however, these stocks and this sector was overplayed by the greed of the investors and facilitated catastrophe in the end.
Take a look at just how big some of these decays where.
As you can see, most of these names still have not recovered from that beatdown they suffered
POP
So what did we learn? We learned that typically when markets take off things get vertical pretty quickly and they last for multiple years. We also learned that when they break, they fucking break. The breach of trend is typically at least a 50% correction and that correction is much more violent than the uptrend. If the market leader turns out to be the cause of the bubble, that break is typically significantly more than the 50% correction and usually 80% or more is lost.
That said, we need to remember our rules. We need to stay disciplined when things break trend and learn to get out when our stops are blown. Even though we don't need anymore reminders, let's conclude by going over the basic flow of a bubble.
I’d like to end this by simply reminding you that this is not a forecast of doom and gloom to come. This is just an explanation to you that history has a funny way of repeating itself over and over again. Whether it’s tulips, railroads, tech stocks, housing or maybe the future cure for AIDS, investors have always and will always overplay their hands causing the majority to be left with the pain in the process.
With that said, the investment vehicles that are left standing at the end of the day have always, and without exception, fucking lasted through capitulation.
Let the games begin.