Hey 5-Star Trader,
We are more than halfway through the landmines we talked about on Tuesday, but the VIX is above 30, the indexes are still clinging to their yearly lows, and buying in masse has remained unseen. Of course, we could always get a short squeeze due to the high put/call ratio, but those need a catalyst to kick them off. Could it be Amazon and Apple earnings? I doubt it, but I’m willing to be wrong if it means getting to trade a short squeeze!
Let’s recap a few key factors from this week:
- The Nasdaq held up over the weekend but fell 5% on Tuesday to make a new yearly low prior to Microsoft (MSFT) and Alphabet (GOOGL) earnings.
- Alphabet, one of the strongest stocks in the Nasdaq, and one of the major components missed EPS estimates and noted a variety of headwinds. The stock fell to just above support at $2200 and tried to recover somewhat, but still remains below a ceiling of resistance.
- Microsoft, again one of the strongest stocks in the Nasdaq, crushed numbers (like usual) and seemed to be one of the only places investors were comfortable putting money besides a slight bounce in energy.
- While MSFT’s move was strong, it all depends on if this move can hold, and follow through. So far, the jury is still out on that, but like Google, price is below a ceiling of resistance, especially between $290-315.
- Elon Musk’s purchase of Twitter dominated airwaves and social circles and likely had an impact on TSLA stock falling 12% in one day. However, this move was also a red flag for any company that crushes it on earnings. The whole reaction seemed very, “What have you done for me, lately?”-Esq. This situation occurs when investors are happy about a move initially, but move on and forget, which is demonstrated by a lack of follow-through in the stock price and trend. Somehow, TSLA went from the Nasdaq darling of the year to below the 200 SMA on the daily chart in a two-week timeframe. Yikes!
- I went into earnings on Teladoc (TDOC), Paypal (PYPL), and Meta Platforms (FB) bearish, and while I seem to have nailed the move on TDOC, it looks like I’ll be adding some adjustments soon to PYPL and FB. Check out my segment on CNBC to learn more!
Of course, this isn’t all, but it’s the quickest recap I can give you here while still leaving room for some more analysis!
Now the question at this point is so simple yet complex all at the same time: Where do we go from here?
Well, I have gone into this week bearish based on the analysis that while I like Alphabet and Microsoft, I didn’t think their earnings moves could be strong enough to push the Nasdaq higher. Additionally, I had hypothesized that the rest of the core, Nasdaq names reporting this week, including TDOC, PYPL, FB, AAPL, and AMZN likely didn’t stand a chance, especially as compared to MSFT, GOOGL and FB.
As I sit here writing this, we did get a positive move in Facebook, which leaves my call credit spreads a bit in the money. However, like TSLA, I will be watching closely today to see if this move fades. It has rallied just about the expected move on earnings, and it has rallied directly into resistance at the $200-205 price point. Paypal is a little strong, so like Facebook, I will see if this can fade and if I get an opportunity for another entry.
Shorting on the lows like that is always going to be tricky, but, with the overall downtrends, it may provide opportunities to add at better price points for more bearish exposure, especially now that earnings are through!
Today’s trade will largely depend on the overall reaction from these stocks. But not just that, we will have Amazon (AMZN) and Apple (AAPL) after the close today!
Check out Amazon in the Hot Zone for some key earnings stats:
A few key factors to note:
- AMZN has beat earnings 7/11 quarters
- AMZN traded lower into their report last quarter, in which they subsequently bounced significantly – but, that move didn’t last long, and it faded to go along with the trend.
- AMZN has a market maker expected move of $176 (as of this writing), which means an expected move to the downside would easily make new lows on the year, and an expected move to the upside would only equal a weak rally into resistance.
- AMZN has already pre-announced their headwinds surrounding inflation, transportation, etc, which probably means more bad news on earnings, but that they were trying to soften the blow
- AMZN is very volatile on earnings and, as such, makes it very difficult to determine a direction on an earnings trade
Honestly, with Amazon, I think I will pass on a trade here. The moves aren’t consistent, either in size or direction. I am short the Nasdaq, as I think a disappointing report could easily send the Nasdaq into a tailspin. I especially think that Amazon just has so many headwinds right now. Between inflation, transportation costs, issues with their workforce, rising seller costs, the amount of money they have had to invest to fight all of these issues, etc, I just think it’s far more likely they miss and make a new low on the year. But, because Amazon can move higher like it did last quarter, I hate to short the stock itself, so I’m shorting the Nasdaq instead.
Now, let’s talk about the other Nasdaq heavy hitter – Apple.
Check out this screenshot of Apple in the Hot Zone (4.27.22).
Here are a couple of key points:
- Apple is below a key technical level on the daily chart, the 200 SMA, which is typically a bearish technical sign
- AAPL has beat 10/12 quarters, but it has only traded higher twice out of the last four.
- Last quarter, even though it gapped up on earnings, that move only rallied into resistance, at which point it rolled
- It tried to get a run into earnings going this quarter, but it only traded directly into that same resistance zone at $180 and fell – again.
- This is now two quarters in a row that this stock has fallen going into earnings. Not a good showing for the top stock in the Nasdaq!
With Apple, I do believe there are a lot of headwinds this quarter. Apple has quite a presence in China which has undoubtedly been impacted by the COVID shutdowns they have faced. Additionally, between inflation as it relates to the pricing of raw goods for their products, plus the inflation consumers are feeling everywhere, I am doubtful that consumers are rushing out to buy new iPhones and Macbooks. There are also transportation costs due to increased crude prices, especially since they sell a lot of physical goods. Add all of that on top of issues with the labor market, and I am just having a hard time believing that Apple can kill it this quarter!
That being said, I also don’t feel like it will get completely crushed like Netflix. I am looking for more of a mediocre move, that, if it breaks 2022 lows, will just add another lead weight onto the Nasdaq. With an expected move of $8, and looking at where it’s currently trading, it’s possible that this report causes AAPL to fall to a new low on the year. If AAPL breaks $148-150, that is the price point where I would expect the most bearish impact.
Now, all of that being said, will I short it? I haven’t decided yet. I like to place my earnings trades right before market close, so I can see where the ticker is trading going into the report. I do own Apple stock, so I’ve purchased the SQQQ’s, the inverse QQQ ETF, for a bit of protection against my long shares. I also have some QQQ put butterflies in play, so I’m not sure it’s necessary to add a short on AAPL itself.
But, I will see how price action goes today, and make up my mind by the end of the day! In the Stacked Profits Mastery program, I’ll let my members know what I decide, and you can also tweet me on Twitter @traderdanielle!