To the uninitiated investor, there seems nothing more insane than the contrasting behaviors of Apple and Amazon stocks.
Tuesday after the close, Amazon AMZN reported weak earnings, and the stock promptly went up about 9% in the aftermarket. Not many days ago, Apple AAPL reported reasonably good earnings after the close, and the stock promptly went down about 10%.
By some traditional measures, Amazon is extremely expensive and Apple is extremely inexpensive. Amazon trades at forward P/E of about 153 and the PEG ratio of negative 246.
Apple trades at forward P/E of about 9 and the PEG ratio of 0.73.
How does a very expensive stock going up on weak earnings and a very inexpensive stock going down on strong earnings make sense? Well, it makes perfect sense from both short-term and long-term perspectives.
From the short-term perspective, stocks move based on whisper numbers and sentiment.
It may take a few minutes to understand the deceptively simple looking charts of Apple and Amazon compared to sentiment normalized to price.
Please click here to see the chart of Apple sentiment
Please click here to see the chart of Amazon sentiment
As they say, a picture is worth 1000 words, and in this case, the charts tell the story. For Apple, as the chart shows, the rise in bullish sentiment far exceeded the rise in the price of Apple stock. In quite a contrast, the bullish sentiment on Amazon has clearly no kept up with the price.
These two charts are perfect examples of how sentiment works as a contrary indicator..Read more at MarketWatch
