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Apple (NASDAQ:AAPL) reports fiscal third quarter earnings on Tuesday, July 19th, after market close. The whisper number is $5.83, 13 cents ahead of the analysts estimates. Apple has exceeded the whisper number in 39 of the 52 earnings reports we have data.

Trading on an earnings event requires an understanding of post earnings price movement, both after hours and intra-day. We'll take a look at the average post earnings price movement, when those moves occur, and if Apple presents an earnings trade opportunity.

Since Apple reports earnings after the market close, it's important to look at after hours trading activity. Over the past four quarters the average price move in after hours trading following its earnings reports is +1.6%, a limited and positive price move. In other words if you took a long position prior to the past four earnings reports you were on the right side of the trade in three out of four trades.

The average price move during the next available intra-day trading (market open to market close) for the past four quarters is -1.5%. A very limited and negative price move. The average price move within five trading days for the past four quarters following the company's earnings reports is +0.5%. A very limited and positive price move.

Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) price movement of +0.4% (intra-day) in one trading day following its earnings report, and price movement of +0.1% in five trading days.

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Apple has topped the whisper number in the past four quarters, but short term it has lacked a consistent price reaction. In other words, beating the whisper number doesn't always translate to price strength. Although it has topped the whisper number in the past 20 quarters, the short term (intra-day) price reaction has been positive in only 50% of the reports. In the comparable quarter last year, Apple topped the whisper number by 34 cents. While the stock gained 5.2% in after hours trading, it proceeded to drop 4.1% in one trading day, and only gained about 3% over the full quarter.

Other factors that may influence post earnings price movement follow.

The majority of investors polled are expecting the company to provide a positive outlook:

  • Positive - 71.4%
  • Neutral - 14.3%
  • Negative - 14.3%

Apple earnings have historically given investors a positive surprise (by very large margin) as it has exceeded investor expectations more times than missed:

  • Beat whisper: 39 qtrs
  • Met whisper: 1 qtrs
  • Missed whisper: 12 qtrs

Summary: Over the past four quarters Apple has topped the whisper number by an average of 83 cents. This gap is growing larger. So the current whisper number is not showing a great deal of confidence this quarter as it is only 13 cents ahead of the analysts estimates. The average price movement (after hours) is limited but positive. The average price movement (post earnings intra-day, long or short term analysis) is very limited. There is no consistent reaction to the whisper number, and there is strong confidence from investors for the next quarter's outlook. This could play against the company if it fails to provide positive forward looking guidance. Data indicates that any long trade would need to be taken prior to the earnings report, but this move would be considered high risk/limited reward. For most, the negatives outweigh the positives and data indicates Apple does not present a viable short term trading opportunity.

When analyzing the data we collect, the most important aspects are how a company reacts to beating or missing the whisper number, the average post earnings price movement, and in what timeframe (see link in profile to receive alerts). Keep in mind that trading on whispers is a technical play on market psychology, rather than a bet on a company's fundamental strengths.

A company's "reaction" to the whisper number expectation is the key - on average companies that exceed the whisper are "rewarded," while companies that miss are "punished" following an earnings report.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.