Note that this is just for entertainment purposes. It is NEVER a good idea playing earnings no matter how "wonderful" a stock is. It is just a matter of time before you get crushed. I have the scars to prove it. With that said, I have a prediction to make about AAPL's earnings. Whether I'm right or wrong is not important. So I will not be tapping myself on the back if I'm correct. And I will certainly not be hiding under a rock if wrong.
What to expect from Apple's earnings report on Wednesday after market close:
I believe it will run up after it reports. Notice I didn't say it will "beat earnings". Beating earnings doesn't matter (though I strongly believe it will beat based on fundamentals). What is important is how it reacts to the news. A company can report horrible earnings and still run up, while another can have excellent earnings and still get slammed. The market has a habit of loving some stocks while having zero tolerance for others (for a time). Recent examples are AAPL and AMZN. In the past AAPL could do no wrong. Even when it reported bad earnings, the market came up with excuses to push it up. But recently the market has loved to hate AAPL. It comes up with every reason to push it down after the reports, even after far exceeded earnings expectations many times. The excuse was usually that a product sales such as ipod, ipad, iphone, iMac, MacPro or MacBook "did not meet expectations". On the other hand, up until its last report on Jan 30th, AMZN enjoyed a long period of grace. It kept missing earnings expectation but that did not stop it from running up (even though it is yet to make a profit). It reports on Thursday after market close. I will see if that trend continues.
So how will the market treat AAPL this time around?
I believe it will run up for the following reasons:
1. After disappointing reports from tech giants GOOG and IBM, the pressure has been lifted from AAPL (somewhat). The bar has been lowed. It doesn't need a "flawless" report to please the market as was expected in recent past, something it was not able to deliver because the bar was set too high.
2. Tech (Nasdaq) has taken a big hit over the past 6weeks. So Apple's report can be used to ignite the next bull leg for Tech (and the market). So the market will be looking for any reason to run up from the report if the bull market is not over. I for one do not think the bull market is over by any means.
3. Its technicals are in place for a strong run up (see my AAPL-WEEKLY and AAPL-DAILY charts). This report will be the catalyst to remove it from its long hibernation. Currently at 524.94, I believe it will gap above 540 or 550 and continue higher.
4. It is not priced for perfection i.e it has not climbed much higher than analysts/investors feel is justified. All the good news that might occur have not been priced in. It is 26% from its all-time high, and it hasn't made a strong bull leg going into earnings to warrant a "buy the rumor sell the news". It is more like sell the rumor buy the news. So there is much room to move up.
So how to play AAPL earnings (in order of preference):
1. Buy Call options if you are willing to risk 100% in the trade. So use only money you are ready to see 100% of it go. Not 25, 50 or 75% but 100% otherwise stay way. Conservative
2. Currently at 524.94, enter on Thursday at the open if it starts >540, then expect a run up thereafter. Conservative.
3. Buy a small position going into earnings then add based on the report. Aggressive.
4. Buy full position going into the report. VERY AGGRESSIVE/RISKY. Pure gambling.
