It was a real lackluster session as investors waited; knowing that yesterday would be filled with drama after the close. The market was in sit-and-wait mode, waiting for big earnings results led by Apple (AAPL).  And for the Federal Reserve conclusion, and to a degree, for primary election results last night, even though the actual outcomes were a foregone conclusion.

Yesterday, the fireworks were earnings that were huge disappointments across the board. 

The Street was bracing for a bad number, but it got something much worse. The biggest company with the longest coattails will lead the parade today.

One Bad Apple

Apple got smoked in the aftermarket as the company missed consensus estimate on revenue and earnings as iPhone sales plunged to a little more than 50 million units from more than 61 million a year earlier.  Gross margins collapsed more than expected, and guidance for the current quarter is significantly below Street expectations.  Moreover, news on China sales also was disappointing, even when making allowances for a strong dollar.

Management is trying to minimize the damage to the stock that’s already losing $38 billion in value by announcing a big dividend increase and a larger share buyback program. 

The stock topped out last May at $132 a share; since then, it has made a series of lower highs.  Now there’s chatter about whether the company has peaked.  Although there has been success under Tim Cook, no one is giving him the benefit of the doubt.  This means there will be a major technical test on the downside, including the 50-day moving average at $94.00.

Short-term investors will flee the stock; at some point, smart money will buy, but not today.  I think the dust settles later as the company approaches the launch of its new phone and maybe its last hope.  Standards are simply so much higher for Apple than any other stock in the market; and now, the company cannot be coy anymore.  In fact, Cook has to sell the misses rather than write it off as Steve Jobs was able to do so many times.

To be honest, it would be a tall order for even Steven Jobs to put lipstick on the following numbers:

Products

iPhone

• Sales -18%
• Units -16%
• ASP $642 from $691 Q/Q

iPad

• Sales -19%
• Units -19%

Mac

• Sales -9%
• Units -12%

Regions

• America
• Sales -10%

Europe

• Sales -5%

China

• Sales -26%

Japan

• Sales +24%

Technically, the stock has been in a locked in series of lower-highs, down 19.9% in the past year.  The stock must find a way to hold above $94.00.  If that doesn’t hold, the stock would be vulnerable to another ten points on the downside.  This creates a serious dilemma.  Shorter-term investors and traders have to consider biting the bullet, and even long-term investors must understand near-term pressure.

Apple shareholders will have company today, as reactions to earnings have been decidedly harsh and brutal last night. Maybe some of them will come back with great conference calls; for now, there is heavy carnage:

eBay (EBAY)

Twitter (TWTR)

Chipotle (CMG)

Buffalo Wild Wings (BWLD)

The Market

However, I am not sure what the impact on the overall market will be with some of the high-profile misses, but Apple hasn’t been a leader and there has been a quiet shift away from high-flying stocks, and even blue chip bellwethers of late for small-cap names.

Russell 2000 has been down more than 9% this past year, but it’s been up 20.7% over the last couple of months.  The index is right at the point where it breaks the long-term downtrend, and it could pick up steam.

 

Today’s Session

The earnings hits keep coming as Boeing is off on disappointing results especially in its tanker business.   But it’s the NASDAQ that will be weighed down by that –now- infamous Apple Halo Effect.  Beyond the headline names, lots of earnings reports crushed consensus and many companies actually guided higher.

Oil is on the cusp of breaking through $45, a feat unimaginable earlier in the year when the consensus was there would be a “2” handle. 

I’ve asked you to keep your powder dry for a few days now, and it’s been the right call, but as emotions take over, opportunities will become more apparent –we are getting close. 

Comments

Every hot product goes through this kind of correction, so it shouldn't be a surprise at all to anyone with a marketing memory. The surprising thing is that a few damn fools always believe that this time it will be different. Apple is just another proof of what's in the pudding. Their link to China is equally worrisome. After 400 million+ abortions, they are in for a population free fall as soon as their huge elderly population dies off. We're in for the same kind of surprise unless we change our ways. And there isn't a damn thing Donald Trump can do about it. Demographics is still destiny. Dennis Howard on 4/27/2016 10:19:21 AM

Understanding the Chinese mentality: Of the 90% of Chinese living in 12th century standards, as soon as the old die off and there are few replacements (aborted, they have solved their population problem, and there is no residual radiation. z on 4/27/2016 10:46:00 AM

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