In the past the Apple Inc. (AAPL) earnings report often has been the most important of the quarter. The stock has lost some of its dynamism due to a general slowing in smartphone demand, but its report tonight takes on extra significance as the FANG names have crumbled.
The question is whether a strong report from Apple will help to provide support for other high-growth, big-cap technology names or will be another invitation to sell the news, like what happened with Amazon.com Inc. (AMZN) following a very good report. (Apple is a holding of Jim Cramer's Action Alerts PLUS portfolio and Amazon is a holding of both the Action Alerts PLUS and Trifecta Stocks portfolios.)
Back in the Steve Jobs days, Apple was notorious for low-balling guidance. The question wasn't whether it would beat estimates, but to what degree. That is no longer the case, but the company still has been able to produce a positive reaction as expectations remain muted.
Unfortunately, the current environment is reflecting an inclination to sell into strength and good news. We saw it with Amazon and, yesterday Caterpillar Inc. (CAT) was another example of how good news isn't enough to create sustained buying interest. It is likely that there will be sellers lined up to hit strength in Apple, but the report may help to bring the FANG names to a support level.
The market has been acting poorly for a couple weeks now, but the business media finally seemed to embrace that fact just yesterday as the FANG names fell. They simply are catching up with other areas of the market that already have been acting poorly. The big question now is whether downside momentum starts to build.
Many times in recent years the bears have been unable to close the deal when they were on the verge of a technical breakdown in the indices. There often is a rotational correction instead, and it is covered up by the indices. That causes many market participants to overlook the fact that it really hasn't been a one-way bull market since 2008-2009.
At the moment the indices are under some strong pressure but have not yet broken down into a full downtrend. On the other hand, many individual stocks already have undergone some severe corrective action and the FANG names joined them in the last couple days.
The important thing here isn't to guess when the market may find support and turn back up, but to protect capital while this action plays out. It is possible that we see a bounce and a major turn back up, but that is not the smart bet.
It is very likely that Apple will not "save" the FANG names tonight. If anything, the potential for it to be an additional downside catalyst is high as the market is inclined to sell good news.
This is not a market for aggressive buying. Risk of further downside is high and capital protection should be paramount.
