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Apple’s Sales Outlook Sours Tech Stock, Broad Market Sentiment

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July 22, 2015

Wall Street had pretty much hitched its wagon to Apple (AAPL) on the way up for much of this year; AAPL itself is up 39% over the past year. And now, the broader market is stopped in its tracks—positioning for back-to-back declines—as investors assess a sales guidance flop from the iPhone heavyweight and other technology names in earnings results issued after Tuesday’s close.

AAPL is a member of the S&P 500 (SPX) of course but the tech-studded NASDAQ Composite (COMP) tends to be swayed by most things Apple on a regular basis. COMP climbed to record territory in the lead up to Apple’s earning reports (influenced a little bit by others, too); it had logged a 6% gain in July to date. So it may come as little surprise that the broader market will try to catch its breath and contemplate a lack of breadth behind the latest climb. Microsoft (MSFT) and Yahoo (YHOO) are also lower after earnings/guidance reports. GoPro (GPRO) is an early gainer.

With the broad market pause, SPX has dropped under support at 2120, putting bigger support at 2100 back in play.

nasdaq-record-high

FIGURE 1: NASDAQ RECORD IN THE BALANCE.

The tech-heavy NASDAQ Composite marched steadily to a new record in recent sessions but disappointing tech-sector earnings raise some doubts about the resiliency of the record climb from here. Data source: NASDAQ. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

iPhone Sales Helped (Past Tense). AAPL said Tuesday that it sold 47.5 million iPhones in the three months ended June 27, an increase of about 35% from a year earlier and more than double what it sold four years ago. All this in a traditionally weaker quarter. Good news for bulls, right? Yes but then came word on the current quarter. AAPL sees revenue coming in between $49 billion and $51 billion; the average industry analyst estimate was for revenue of $51.13 billion, the Wall Street Journal notes. A few analyst downgrades—at least price target cuts—trickled in.

And for Mr. Softy? Microsoft (MSFT) logged its biggest quarterly loss in its history tied to the write-down for its Nokia purchase. But investors likely cared more about the 5.1% drop in revenue in the latest quarter hurt by weakening PC demand. The latest version of Microsoft's operating system--Windows 10--is due to come out next week. However, analysts ahead of the earnings report weren't expecting the updated software will do much to boost weak sales trends for personal computers, the Wall Street Journal reported.

Commodities Fall Again. Grains to gold fell again on anticipation of a Fed rate hike and the dollar's strength. Toss in softer global growth and a supply glut in many categories. Gold fell on Wednesday for a seventh session in eight after its steepest drop in almost two years. Crude futures are also heading south on speculation weekly supply data due later could show U.S. inventories rose unexpectedly last week.

Good trading,
JJ
@TDAJJKinahan

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