The Week Ahead In Stocks – May 07

New all-time high for AAPL

Last week saw a new all time high for Apple (AAPL). Who would have thought it possible after the panic and downgrades leading into earnings?

Well, we did for one. “We still expect AAPL to make new highs above $184,” was the call, and while we could not be sure of the direction of the initial spike, we have always been confident of a move higher.

We were guided in our view by some clear comparisons. AAPL has shown relative weakness before, notably in 2016, and the consolidation pattern in this period is structurally similar to the current pattern.

The long-running General Electric (GE) 1987 comparison also helped keep us bullish.

Applying some simple common sense always helps too. Apple had sold off over 10% into the release and had broken its 200dma. Traders were bearish, analysts were bearish, expectations were low… Apple was clearly priced for failure, which meant even if it missed, the downside was limited. As it happened it only took a beat of $0.05 to propel the stock +14% and to new all time highs.

Earnings reactions are a complex mix of expectations, price moves and positioning into the release, and the numbers themselves. Often (but not always), there are enough clues to provide an edge going into the release. Evidence enables you to time the trumpet before the event rather than just blow it after.

Looking ahead, we have already started gathering evidence for our weekend email, which will research what happens to various stocks in a disinflationary bust like 1987. The rally in yields has already pressured the prices of dividend stocks and we are tempted by the likes of AT&T (T) with its 6.22% yield. If the stock market crashes what will happen to these dividends? Will falling rates and a flight to safety support them, or will a crash pull everything down?

Good luck and good trading.

Andrew McElroy
Chief Stocks Analyst
MatrixTrade.com

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