By Thomas H. Kee Jr.
Large cap tech looks weaker than the broader market today, with one exception. Apple Inc. (AAPL) looks remarkably strong ahead of its earnings report. The report from Intel Corporation (INTC) last night has the stock down, and it seems to be the cause of the comparative weakness in large cap tech, but Apple is not moving with the pack.
Early this morning, while the S&P and Dow were in the process of making all time highs, the 2x short ETF for large cap tech, QID, was actually up solidly. The short side of large cap tech was working very well in early trading, and that leads us to believe that if the market does start to experience intraday weakness that decline will likely be lead by large cap tech.
At the time this article was written the automated trading strategies offered by Stock Traders Daily all had triggered short, and because those strategies focus on large cap tech those strategies bought ProShares UltraShort QQQ (ETF) at what currently are session lows.
Timing means everything to trading strategies.
However, insight also helps, so ahead of Apple's earnings, news that will directly influence large cap tech, we have this additional observation. Recently, Apple had a series of negative news pertaining to competition and product rollouts, but the Street has been buying the stock, and it is up about 10% from recent lows. Seeing it strong the day before earnings is also an eye-opener.
The strength in AAPL ahead of earnings could be due to analysts expecting sales to be solid given the contracted requirements to buy Apple products from carriers such as Verizon Communications Inc. (VZ), it could be part of the Great Rotation as former bond investors find value in AAPL, but whatever it is we can safely assume that they are not expecting disappointing numbers.
Normally, if the market is expecting a bad release they will not buy ahead of earnings, instead they will sell ahead of earnings, and if they are surprised the stock will rally after the release. In this case they are buying ahead of earnings, they have solid expectations, but we know there are material overhangs, and the stage is set for those recent buyers to be a little disappointed.
We believe that if NASDAQ resistance holds it is best to play the trade with a large cap tech ETF like QID. Be very cautious about Apple's release.