Wednesday, January 25, 2012

Apple Blowout Earnings Lifts Nasdaq

The markets are mixed this morning with the Dow and SPX lower, but the Nasdaq higher after Apple (AAPL) reported blowout earnings last night. Expectations were already running higher for AAPL coming into the quarter, and many people feared the stock could sell off after reporting just due to profit taking. But the upside that AAPL reported was far greater than expected in nearly every category. Earnings blew past estimates, unit sales were record, and margins were much higher than we have seen. Currently AAPL is up 7% near $450.

A few other companies beat estimates but their stocks are lower after reporting, including UTX, BA, and COP.

In economic news, pending home sales for December fell 3.5%, which was below consensus. This doesn't seem to have moved the market much. Participants are likely waiting to hear the latest monetary policy statement from the Fed, which will be released at 2pm EST. The big question is whether the Fed will change its language surrounding holding rates low "until mid-2013".

In Asian, Japan was higher again while China and Hong Kong remained closed for holidays. Boy, they sure do get a lot of market holidays over there. In Europe, markets are lower amid continued delays with creditors in getting the Greek debt terms revised.

The euro is also lower relative to the dollar, weighing on commodities. Oil prices are down near $98, gold prices are lower to $1653, and copper prices are also slightly lower.

The 10-year yield is off slightly to 2.06%. Today is day 4 above the 2.0% level, but it will be interesting to see how it reacts to today's FOMC announcement. As for the VIX, it is up another 1.6% to 19.21, the 5th consecutive day below the 20 level. I think going long volatility will be a good trade at some point, but haven't done anything yet.

Trading comment: The market remains overbought but pullbacks haven't gained any traction. The SPX hit 1310 five days ago, and today it is still right at that 1310 level. So while bulls were hoping for a pullback so that underinvested managers could put more money to work, all the market has given us is some sideways consolidation. As such, it is very possible that the market continues to frustrate the majority (as that is it's job) and stair-step higher into month end.

KAM Advisors is long AAPL


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