AAPL Weighs On Nasdaq

The markets are mixed this morning with the S&P 500 making fresh highs while the Nasdaq languishes under the weight of AAPL shares.

I read the earnings release for AAPL and listened to the conference call and the results do not lend themselves to a -10% plunge in the share price.  It's tough to watch this as an investor but it really comes down to high expectations.  Traders were hoping for a bigger beat on the EPS number as well as higher unit sales for iPhones and Macs.  Mac sales were definitely light, as the company said they were capacity constrained on production.  So I'm not sure it's a softening demand issue. 

I think shares of AAPL remain very cheap, but the stock had simply become over-owned.  Every fund manager was already overweighted in shares of AAPL, so there just are enough new buyers out there relative to sellers.  And that is why the stock still hasn't bottomed.  I am hopeful that this quarter will mark the lows in the stock.  I sure hope AAPL's management wakes up and starts buying back its own stock.  They did a poor job of stock buybacks during the quarter.  They have $130 billion in cash and buying back stock at these levels would be a nice way of helping shareholders.

Among other companies reporting earnings, I am seeing more stock showing positive reactions vs. negative ones.

Stocks rising on earnings: NFLX, MMM, MO, BMY, BGG, JBHT, GWW, AVT, AGU, PCP

Stocks falling on earnings:  AAPL, VAR, UNP, DBD, ARG, LMT

Asian markets were mixed overnight.  China fell -0.8% depsite its HSBC Manuf. PMI rising to 51.9, its best level in 2 years.  S. Korea GDP came in a bit low at 0.4%.  N. Korea said it is planning another missile test.

European markets are also mixed today after the Eurozone PMI came in at 47.5, and the services PMI was 48.3.  Spain's unemployment rose to a record 26% and the youth unemployment component hit a whopping 55%.

The dollar is lower today, but commodities are mixed.  Oil prices are higher near $96, but gold and silver are lower with gold falling to $1669.

The 10-year yield is a bit higher to 1.86%.  And the volatility index is still hovering around 12.60.

Trading comment: The S&P 500 is higher for a 7th straight day.  We looked at several different measures of market breadth yesterday, and the market is overbought on nearly every one of the indicators we looked at.  While the timing is never perfect, that usually means a short-term pullback is in the cards.  So we would prefer to wait for such a pullback before adding to new or existing positions.

KAM Advisors has long positions in AAPL, BMY