Back to Financial Issues Driving the Markets — Whew! by D. R. Barton, Jr.

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Back to Financial Issues Driving the Markets — Whew!

by D. R. Barton, Jr.

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The European “powers that be” have kicked the Greek debt bomb down the road one more time. Meanwhile, China’s central government has temporarily slowed the bleeding in that country’s equity markets. (which goes along with the squelching of a good bit of trading volume and standard price discovery — but that is all grist for another article).

All of this brings us to a week where the news flow effecting financial markets is all about — surprise! — financial matters.

Three recent items have been front and center:

	1.	Google’s impressive earnings report and stock price response (jumped),
	2.	Apple’s impressive earnings report and the stock price response (slammed),
	3.	The curious case of markets making highs (and all-time highs in the case of the NASDAQ) with fewer and fewer individual stocks joining the party (we’ll cover this issue next week).

Let’s dig in and see what’s going on with Google and Apple.

Google Blows It Out

Last Thursday’s Google earnings and revenue increases were better than expected leading to a much ballyhooed single session gain in market cap of $65.1 billion.

Fortune reported that co-founders Larry Page and Sergey Brin each added a mind-blowing $4 billion to their individual net worth last week. Not a bad day at the office.

I trust that long-time (and long-suffering) readers of this space were ready for both the volatility and the “day after” follow-through of the GOOG earnings after reading my past article, Google's Monster Earnings Moves.

Armed with the stats that GOOG follows through in the direction of the earnings move more than 80% of the time, you could have scored big last Friday as the stock once again powered after the open for a big intraday move to add to the earnings gap jump:

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The boom in Google has helped fuel the rally in the NASDAQ to new all-time highs, the NASDAQ was knocked off those highs a bit by this:

Apple Not Giving Enough Great Earnings News

Let’s see:

	•	AAPL beat earnings estimates.
	•	APPL Earnings Per Share numbers were up 44.5% year-over-year.
	•	AAPL beat revenue estimates - by an astounding 32.5% year-over-year
	•	And the stock price got absolutely hammered because iPhone sales did not meet expectations. Specifically, they were 2.6% less than expectations. The fact that iPhone sales in China were way down (off by 21%) also added to the drop.

It has become clear that this world-dominating company has to smash expectations in all categories or get punished for it. I guess the psychology of wanting to knock the top dog down a notch is alive and well on Wall Street.

Interestingly, AAPL is one of the few major stocks that has the opposite tendency of GOOG on the day after earnings. AAPL had a high probability of fading the post earnings move or having its stock price move in the opposite direction of the overnight gap. This morning’s action has followed this pattern quite nicely:

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As you can guess, this drop in Apple stock has taken the wind out the NASDAQ index’s sails, at least temporarily.

Next week we’ll look at how market breadth (participation rate) has been giving “non-support” signals during the recent run up.

Until then, please let me know your thoughts and opinions on the article. Send your comments to drbarton “at” vantharp.com – I always enjoy hearing from you!

Great Trading,
D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business’ Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch’s Money Life Show. He is also a frequent guest analyst on CNBC’s Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television — America and Canada’s Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".

Back to Financial Issues Driving the Markets — Whew! by D. R. Barton, Jr.

Back to Financial Issues Driving the Markets — Whew! by D. R. Barton, Jr.

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