Will Apple Confirm or Deny Wednesday’s Tech Rally
The S&P jumped on Wednesday and the Dow hit a fresh 2011 high intra-day as a wave of optimism swept across Wall Street.
Technology shares led the charge after Intel forecast quarterly revenues well above Wall Street's estimates easing worries about PC growth. Looking at the charts, Intel technicals appeared bullish with the stock rising above its 50-day and 200-day moving averages.
VMware also generated a tailwind after the computer virtualization company beat estimates and said its margins would expand this year as it landed some big new clients.
Even Yahoo advanced, with beleaguered company posting results that topped Wall Street targets.
As a result top traders are even more focused on Apple , with the iPhone maker releasing results after the bell Wednesday. They're looking to see if Apple confirms or denies the sector’s gains.
Although the company is among the most loved stocks on Wall Street, chatter is growing that Apple could disappoint this time around.
“Some institutions are starting to lighten their positions here and I have a hard time imagining that earnings are going to be a catalyst to change their view,” says trader Mike Khouw of Cantor Fitzgerald.
”Without an exciting product on their plate and with the market baking in what is going to happen, I think the options markets are telling us we are better off leaning to the short side,” Khouw adds.
What should you expect? How should you position?
Instant Insights with the Fast Money traders
Trader Steve Cortes agrees with Khouw. He thinks that Apple results are more likely to disappoint and in turn, deny the rally. “Apple has not been trading well lately,” he says. “The Dow Jones Industrial Average hit a new 2011 high on Wednesday but Apple is still a good 5% away from its 2011 high. Price has struggled and that suggests the law of large numbers is having an impact. Growth from here becomes more difficult for Apple.”
BGC analyst Colin Gillis is solidly bullish and disagrees with the thesis laid out by Cortes. “This is the best growth name in technology right now," he says. "Over the last 5 quarters revenue growth has been accelerating,” he says. "Apple is the company that's capturing the revenue and profits of the smartphone explosion."
Patty Edwards is in the middle. She thinks that Intel results bode well for Apple. However, she wouldn’t add to a position unless it trades above its 50-day moving average or about $345.
Even with an upside surprise, Apple may still not drive the market. Host Melissa Lee points to research from Biryini which shows that since 2003 Apple has beat on every single earnings report.
”It moves on average 6% in either direction in the after hours. But no matter how it moves – 63% of the time by the end of the next day it closes lower."
“That would indicate you should sell on the open,” comments trader Brian Kelly. "Or don't buy on the open and wait for the pullback a day or two later."
OTHER TECH TRADES
Looking at the move in technology broadly, trader Brian Kelly reveals that he covered his short position in the SMH. “Price is truth,” he says “and the market has spoken.”
Trader Patty Edwards says she prefers playing tech on the enterprise side of the sector. “I’d look at IBM,” she says.
Trader Steve Cortes suggests putting Intel on the radar. He’s a buyer on a pullback. “I think the Intel story is changing. Intel has been discounted as irrelevant to the mobile market but I believe their atom processor will capture (some of) the mobile market.”
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Trader disclosure: On April 20, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Cortes Owns (SDY); Cortes Owns (EXC); Cortes Owns (RIMM); Cortes Owns (GS); Cortes Is Short (BAC); Cortes Is Short (F); Cortes Is Short EUR/CHF; Kinahan Owns (C); Kinahan Owns (MSFT), Is Short (MSFT) Calls; Kinahan Is Short (SLV) Call Spreads; Kinahan Is Short (WFC) Call Spreads; Kinahan Is Short (YHOO) Puts; Kinahan Is Short (SPY) Through Option Positions; Kinahan Is Short (FCX) Through Options Positions
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