With a large portion of the east coast snowed in today and this past weekend the oil markets received an anticipated boost heading into the weekend. That said, oil's 13+% rally in just two sessions was eased heading into todays session. With traders taking their risk off the board and with the SPX making a technical bounce, some investors were quick to call a temporary bottom in oil. As I type this however, oil is making session lows and looks to test the 30 level shortly. One of two events needs to occur for bullish traders on this busy week.
- Oil and the markets diverge and subsequently trade independently of one another (unlikely)
- Oil actually finds a temporary bottom and buyers step in with a little more conviction
This weeks busy earnings season kicked off with McDonalds (MCD) and Halliburton (HAL) beating street estimates. However for HAL North American revenue declined by about 28% year over year and operating income dropped from $5.1 billion to an operating loss of $165 million. This read through gives us a term that we've grown all too familiar with; "Revenue recession."
D R Horton (DHI) Posted a beat on earnings with a slightly higher-than-expected profit along with a rise in orders for the last quarter of the year. However, investors focused on DHI's growth rate which was the slowest since the fourth quarter in 2011. Even with earnings providing themselves as a catalyst of sorts, equities can't seem to get out of their own way as investors line up to exit stage left.
Tomorrow we get a further read as P&G, J&J, Coach, and 3M give us their results in the morning. At&t, Capital One, Stryker, and of course Apple cap off the evening. That sets us up for a Wednesday which includes a myriad of more earnings reports and a Fed Statement that should keep everyone on their toes.
800 LB Gorilla Named AAPL
AAPL is set to release numbers on Tuesday night after the bell amid a horrible tape and an underperforming issue since failing near its top in July. Everyone and their brother has an opinion on this stock and the issue has not been able to get out of its own way for months.
Since July, the stock has seen its price cut by over 33% falling as low as $93 (excluding flash crash in August). With that fall, and with analysts slashing targets (albeit not dramatically) the stock finds itself in a peculiar place. Either analysts need to revise their estimates more and slash their targets even more dramatically, or AAPL is unfairly being discounted relative to the market because investors are no longer seeing it as a beacon for growth. If we strip all of that out and strictly look at AAPL as a technical play, here's what we get.
With the stock in a downtrend and a head and shoulders on the monthly and weekly, there really hasn't been much reason to own AAPL for the last half year. The stock has however presented an opportunity with the $93 test from last week. The test of the 93(ish) level was the 2012 high and a solid retrace back to it from all time highs. Coincidentally, on that test AAPL also gave a 50% retrace from the bull run it's enjoyed since 2013. In addition, the monthly 50MA sits just below that level at ~$90. With all these indications, and a refresh cycle year for the iPhone, it would be foolish to remain staunchly bearish on this beast. If you can afford it, a risk reversal would be an interesting way to play this name heading into earnings.
BIAS: Bullish with 92 stop (or 90 if your tolerance/timeframe is higher)