Apple (AAPL) Earnings: The Tail Wagging the Fed's Dog

01/29/2019 12:47 pm EST

Focus: STOCKS

Michael Paulenoff

Consultant and Publisher, MPTrader.com

Despite a heavy week of economic reports and multiple earnings announcements, market performance is likely to hinge on the Fed, and its reaction to Apple’s Tuesday earnings announcement, notes Mike Paulenoff of MPTrader.com.

This week is loaded with potentially significant directional market catalysts such as earnings from mega-cap industrial names like Caterpillar (CAT), Boeing (BA) and Exxon Mobil (XOM), as well as from technology powerhouses Apple (AAPL), Facebook (FB), Amazon (AMZN), Advanced Micro Devices (AMD) and Qualcomm (QCOM), writes Mike Paulenoff Sunday.

At the end of the week, the Bureau of Labor Statistics is scheduled to release the December Employment Situation Report.

However, the most consequential market-moving event will likely occur Wednesday afternoon when the FOMC releases its next policy statement, and at 2:30 pm EDT when Fed Chairman Jerome Powell holds the post-meeting press conference. The Fed will have the Apple’s earnings news from Tuesday after the bell on its mind. This is because back on Jan. 2, Apple pre-announced a shortfall in revenues for fiscal Q1, 2019. It was the first such slash in quarterly earnings in the past 15 years, mostly blaming the decline in iPhone demand on sluggish economic conditions in China.

While Apple has climbed 11% from its Jan. 3 corrective low of $142 to last Friday’s close at $157.76, the stock has lagged the 14% rally in the S&P 500, and the 16% post-Christmas rally in the Nasdaq 100. Apple’s faithful are nervous about the reaction of the stock to earnings, especially if there are any forthcoming surprises in The Street’s revised metrics, or from CEO Tim Cook’s explanation of continued sluggish sales performance of the iPhone.  

Technically, Apple is at an important crossroads heading into Tuesday’s earnings news. After the company’s negative pre-announcement, the stock plunged to a Jan. 3 multi-month low at $142, which tested and held two key technical levels: The 62% retracement support level of the entire 2016 to 2018 advance from $89 to $233.47, and the 200-week moving average, now at $142.32, which has contained every significant bout of Apple weakness since 2009 (see chart).   

chart
Source: Barchart.com

Hours after the Apple pre-announcement bombshell on Jan. 4, Powell joined a televised discussion with former Fed chairs Bernanke and Yellen informing investors that the Fed’s future rate trajectory of three to four quarter-point hikes in 2019 is not set in stone.

Could it be that after the major equity indices declined 20% in 13 weeks, triggering intense pressure on the Fed from all quarters that a negative and destabilizing earnings warning issued by Apple on the first trading day of 2019 pushed Powell into a more accommodative mindset?  After all, Apple is a major component of all the benchmark indices as well as numerous exchange traded funds (ETFs) and has intricate ties to the Chinese economy. Apple and the S&P 500 have not looked back since Powell’s accommodative remarks on Jan. 4.

As fate would have it, the day after Apple’s earnings report, Powell and his FOMC will be front and center in the crosshairs of investors. Could the reaction of investors to Apple’s report impact Fed policy (again)?

If Apple earnings are negative and tests its 200-week moving average that could trigger a negative technical warning, which also could have far-reaching psychological and economic implications for investors.  Apple’s price behavior will argue for additional accommodation from the Fed over and above what Powell and company already have communicated to investors and markets during January.

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