How Apple's Earnings Could Affect the NDX

Includes: AAPL, QCOM, QQQ
by: optionMONSTER

By Bryan McCormick

The Nasdaq 100 broke out of its short-term downtrend this morning, fueled by positive earnings results from Intel last night. The semiconductor group is one of the best performers today as a result.

Given that group's weight in the Nasdaq 100, it isn't surprising to see the index trading up. Most stocks even peripherally related to Intel were up today as well, and that broadening of price gains helped to make the breakout occur.

This nascent rally is not without challenges or obstacles ahead. Tonight two heavily weighted names will report earnings -- Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) -- and they will set the tone for what happens in the Nasdaq 100 tomorrow.

Ahead of their news, we can have a look at some levels in the index to watch. A close look at AAPL may help provide a rough estimate of what could happen tonight.

An important point of comparison is the basic price shape on the chart of the Nasdaq 100 and Apple. There are some clear differences, one being that the dip in March was more extreme in the Nasdaq 100 and the other that Apple had sold off more than the Nasdaq 100 had in the last two weeks.

The latter move had Apple dropping to prices just two days ago that took out its March low. But the basic shape of the two charts is close, and that shouldn't be a surprise given AAPL's 20 percent weighting in the index.

If the news is positive and exceeds expectations, as has generally been Apple's pattern, it is probable that the old highs in the Nasdaq 100 would be met or exceeded. A move to its old highs at $365 would almost certainly mean that the NDX would follow suit, bringing the index back to the 2400 area and possibly higher.

The reason is that many more stocks are pushing the Nasdaq 100 than Apple alone, and many of those are at highs exceeding their February peaks. It also is common sense that, other factors being equal, a new high in Apple would be a new high in the index that it dominates.

What is more difficult to gauge is how far the index might fall if Apple falters on mediocre or poor news. That appears very unlikely by most analysts' estimates, but given how broadly Apple influences other tech shares, a move down to the 200-day moving average area -- near $308 today -- would end the Nasdaq 100's breakout. In that event a move to the recent lows in the Nasdaq 100 at the 2220 area could easily take place.

On positive but less spectacular news, resistance at the 2380 area on the Nasdaq 100 might be a stopping point. In many respects that would be the most difficult outcome for traders, leaving few clues to direction.