Quarterly earnings from Apple for the three months ended March 30 come out Tuesday after the market closes. Unlike in prior quarters, there is not a high probability scenario that can be laid out with any degree of confidence ahead of earnings. Acting on Apple stock ahead of earnings this quarter is a fool’s game.
Here are my seven reasons:
1.) Sentiment on Apple is negative. According to the indicators I watch, negative sentiment is at a level which usually leads to a strong move to the upside. I have backtested 3000 U. S. stocks and 1000 international stocks going back to 2007 and in some cases going back 30 years. I have found that when the sentiment from an indicator I created is at a level where it is for Apple today, 83% of the time the stock jumps after the earnings even if the earnings report is bad, but a positive conclusion cannot be drawn from the foregoing observation about Apple this quarter. The reason is that according to a Reuters’ survey, 45 of 58 analysts polled by Reuters are bullish on Apple. Such bullishness among analysts in the face of bearish sentiment is unprecedented. There is no precedence in my extensive backtesting where analysts were so bullish when my proprietary sentiment indicators were so bearish.
2.) As always, there is variance between analysts’ earnings and revenue estimates. There are differences even between my various sources. For the sake of illustration let us refer to easily available data from Yahoo Finance. The low estimate for earnings is $9.23 per share and the high estimate is $10.07; the low estimate for revenues is $41.06 billion and the high estimate is $44.13 billion. The range of these estimates is remarkably small. In my backtesting and 30 years of trading experience, I have consistently found that bottoms in stocks tend to coincide with a wide range in analysts’ estimates. Again the data here does not support buying Apple ahead of earnings…Read more at Forbes
