Apple Inc. (NASDAQ:AAPL): I Am Going To Play Into Earnings With A Call Spread
Futures are flat Wednesday morning after the market once again broke to new five-year highs yesterday. While volume and momentum are not terribly exciting for intraday traders, the action has remained constructive for swing traders and investors. After a fast start to the year, we have gotten healthy rest and digestion before slowly grinding higher.
Last earnings season was a drag on the market, but so far this season has been better-than-expected. Banks set the tone last week with mostly strong reports, and tech has kept up the momentum so far this week. Last night IBM (NYSE:IBM) and Google (NASDAQ:GOOG) topped consensus expectations and are trading up about 4-5% pre-market. The tech sector has been lagging the rest of the market, and last night’s reports could help to change that a bit. The real key, though, could be Apple (NASDAQ:AAPL), which reports earnings tonight. The stock has been a drag on the market after correcting from above $700 to below $500, so any change of complexion could trigger further upside in the indices.
Google Inc. (NASDAQ:GOOG) is gapping up near decent resistance of $742-745. It will be interesting to see if they try and sell it down. If it holds the majority of the gap in the first 30 minutes, maybe that resistance could get taken out. For me, I like to wait a few days to see how much of the gap holds, and then trade it based on complexion.
IBM is trading this morning near the gap from last quarter’s earnings miss. Resistance stands at $203.50 then the gap is filled at $209.50. I would approach with the same type of strategy as GOOG. Will they sell it after the open? Again I will watch the gap for future composure.
Apple Inc. (NASDAQ:AAPL): I am going to play into earnings with a call spread. With an options strategy, the risk on the trade is premium paid. I bought the $525 call and sold the $550 call with a ~$5 cost basis. If the report is any good, the huge descending channel will get resolved above $530. The next resistance after that is $555ish, and then after that there is $574 and $590. In addition to the call spread, I may look to trade the equity after-hours. If it’s a soft report, the call spread will be worthless, but risking $5 to make $20 I’m willing to live with that. The levels to watch are recent low at $483, then a weekly support at $470ish and then major support at $440.
Micro support on the S&P 500 ETF (NYSEArca:SPY) is now $148.40-148.50, with a the 8-day moving average down at $147.59. Pivot resistance is $149.13 with $150 posing as a psychological level. At this point it’s very tough to “sink your teeth” into this rally for core type trades, but there’s no reason you can’t continue to trail existing longs and look for add-on” type trades for cash flow as the motion continues. My Oscillator is almost at the levels we saw on September 14th, overbought but not yet extreme.
The debt ceiling debate could get kicked down the road to May following the vote today, which would remove a short-term psychological obstacle for the market. Bears looking for another fear-mongering headline to obsess over will be disappointed.
One of my rules with earnings is to see how much of the gap holds before potentially buying strong reports. In the sessions after an earnings report, you can use that gap as a point of reference to trade against and measure strength. Typically the action on the day after earnings is very noisy and choppy trading.
Some of our commentary was in CNBC’s Worldwide blog last night.
The Financial Sector ETF (NYSEArca:XLF) continues to new highs. Goldman Sachs (NYSE:GS) has been an animal but is too extended for new entries, in my opinion. The pivot to watch is $146.28, and the 8-day MA is all the way down at $140.18. Trim and trail trading positions in this stock.
JP Morgan (NYSE:JPM) is also still on the move but a little slower. Wells Fargo (NYSE:WFC) has been the laggard but it has a set up. If it can get above and stay above $35.20-35.50 it could get going. Bank of America (NYSE:BAC) is trying to hammer out some support. You could trade this long versus the $11.00-11.10ish level. Citigroup (NYSE:C) is also trying to turn up. State Street (NYSE:STT) has been an animal as well but way too extended to buy now, in my opinion.
General Electric (NYSE:GE) has earnings out of the way now, and the longer it holds $21.80 the better the odds, in my opinion, it takes out $22.20 and sees old highs.
Casinos are back in play. Las Vegas Sands (NYSE:LVS) triggered a follow on buy above $52.80. The original buy strategy came on July 26th when the stock got downside capitulation. Wynn (NASDAQ:WYNN) is still acting okay, but I believe it needs to stay above $123 for potential continuation. MGM Resorts (NYSE:MGM) is trying to set up again. A move above $13.20 could get it going again.
The Transports ETF (NYSEArca:IYT) has seen a huge run after resolving the monthly descending channel in December above $92ish. I would not buy it up here around $102.50, and I am actually starting to look at it for a “cute short” opportunity, but haven’t entered yet.
The Oil Refiners (NYSE:OIH) picked up some steam yesterday with a nice breakout above $41. The next real resistance comes in around $44. Nice moves in the individual names we watch in the sector Schlumberger (NYSE:XLB), Halliburton (NYSE:HAL), EOG (NYSE:EOG) and Pioneer (NYSE:PXD).
Scott Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Scott moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, he maintained his status as a top trader in the industry while working closely with all traders in the firm to dramatically increase performance. Scott has participated in more than 30 triathlons and one IronMan triathlon, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business and Bloomberg, and he has been quoted in the Wall Street Journal and Invest.
Scott is currently the Chief Strategic Officer of T3 Live and is a Registered Associated Person of T3 Trading Group, LLC.
*DISCLOSURES: Scott Redler is long GE, MGM, KORS, WMT, GLD, LVS, LNKD, DBC, CAT, F. Long AAPL $525 calls
Short SPY. Short AAPL $550 calls