Follow the Market Leaders

 | Oct 18, 2011 | 2:00 PM EDT
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I just wanted to check in before earnings reports from Apple (AAPL) and Intel (INTC) tonight because INTC earnings often mark a turning point for the market, and AAPL is probably the most-loved stock in existence.

AAPL earnings are always an interesting exercise in psychology because everyone knows, without a doubt, the company will beat estimates -- it's just a matter of by how much. Over the last four quarters it has beaten by 13.7%, 19.1%, 19.2% and 33.6%, respectively. That last quarter was well ahead of the whisper number and the stock reacted strongly, even though it already had a straight up move going into the report.

For the fiscal fourth quarter, the average estimate is for earnings of $7.28 per share. I believe the market will be looking for that to be surpassed by 15% to 20%, which would be $8.37 to $8.73. Anything under $8.50 is likely to invite profit taking, especially since the stock has had a good run the last couple of weeks. The other thing to note is that AAPL is notorious for low-balling guidance, and that is expected, but any talk about growth slowing will be treated harshly.

AAPL management has been masterful in the way it has managed earnings, but that hurdle is quite high because it isn't possible to keep expectations low -- anything less than a great quarter will disappoint some.

INTC in some ways is a more important report than AAPL, as it tends to be a bellwether for the technology group. It was INTC earnings that kicked off the huge rally that started in 2009, and a poor report has marked bumpy earnings seasons in the past.

Like many other stocks, INTC has made a big move recently and is running into resistance, so the risk of a sell-the-news reaction is high. INTC typically beats by a few cents, but guidance is the key. A poor INTC report on the heels of IBM's (IBM) disappointment last night will make for tough going in the technology sector.

Although earnings have been a mixed bag so far, the overall technical picture isn't bad. We are still a bit extended and running into overhead resistance and we need some backing and filling, but if we hold in the upper part of the trading range in place since early August it will be a good setup for a positive close into the end of the year.

We'll see what earnings bring tonight and how the mood develops. The bounce back today tells us that there are still plenty of underinvested bulls that missed the recent run and want in, and they will turn into short-term flippers if they don't see positive news flow.

I want to thank everyone for all the encouraging comments about my cochlear implant surgery. We really have a great community of people here. The surgery went very well and looking forward to being hooked up in a few weeks, but I'll be moving slowly for a few days. I'll be checking back in tomorrow.

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