Apple Earnings Set Negative Tone for Market

Investors take a bite out of Apple… following their earnings release which was basically in line with expectations, but the forecast was light relative to what analyst were expecting. That sent the shares lower by 5% in after-hours trading. There are some quotes showing it down as much as 10% prior to the open this morning. What does this mean for the broad markets? Best guess not much as it was almost expected based on the last four months of trading. However, the NASDAQ 100 index and the Technology sector will feel the brunt of the move based on the size of the company. The NASDAQ 100 (QQQ) Ā is pricing down 1.5% and XLK down roughly 1.7%. The suppliers will take a hit on this news a well. Bottom line… expect a negative day for Apple and the technology sector. Watch to see how this plays out not only today, but over the next week. Our target on Apple has been $425 and this put the stock another step closer to that objective,

Crude oil fell to $95.23 or 1.5% in trading on Wednesday. The reason… backup in the new Seaway Pipeline that serves the Texas coastline. The new production capacity allowed up to 400,000 barrels per day to flow from Cushing, Oklahoma to Texas, up from the previous 150,000 barrels. However, last week that numbers were cut back to 175,000 based on the end users not needing as much crude. Thus, the demand side of the coin has matched up with what many expected overall in the region. Today we will get the weekly inventory data for crude and it will be watched closely based on this report. The key for traders will be if the sentiment shifts relative the outlook for oil prices. Equally important to the energy space, will be the inventory numbers for Natural Gas, out today as well. The expectations are for higher demand to ramp up based on the cold weather in the northeast. If there is disappointment in the numbers for Natural Gas we could get a double-whammy in the energy commodities. We own both commodities currently and we will adjust our stops as we start trading today.

The markets has been drifting higher without much in the way of concerns since the November lows. The question now facing investors relative these issues will be impact on the sentiment and trend. If the markets remain as resilient as they have been over the last ten weeks then expect the upside to remain in place. However, if the data is enough to create worry, we could see the pullback test of the trend many analyst have been talking about since the 1430 level on the S&P 500 index. The index closed at 1495 on Wednesday. This is where you have to manage positions within your portfolio to dampen the risk. Adjust your stops accordingly and remained focused on the overall objective.

To add some fuel to the fire the debt ceiling issues facing Washington are being kicked down the road ninety days, but the problem remains. Many expected a rally continuation if Congress passed the temporary measure on Wednesday. The S&P 500 did manage to gain 0.4% off the low of the day, not exactly a rally. The after-hours earnings data weĀ discussedĀ above from Apple could be a catalyst on the downside for stocks. Remember the 90 day delay puts the issue with the budget and the debt ceiling out to mid May, it does nothing to resolve the looming issue of discussion to resolve the budget shortages. More taxes are already on the way and some analyst expect another round of hikes before the issues are settled.

Speaking of more taxes… the new MedicareĀ surtax kicks in this year as part of the new healthcare bill passed in 2010, i.e. Obamacare. This is an additional 3.8% tax on income… all income. The current Medicare tax is only levied on earned income, and not passive or portfolio income. The new tax is in addition to the tax on income as it includes all passive and portfolio income above $250,000 married, $200,000 single. Thus, if you combine all you income and the total exceeds these levels you pay an additional 3.8% Medicare tax to supplement the cost of the new healthcare bill. These incremental taxes on the “wealthy” are starting to add up and they will have an impact on the economic picture longer term. The good news, income from a retirement plan (IRA, etc.) is exempt from the calculation.

Keep your eyes open and your ears clear as today promises to be fun for all. Manage your money by manage the risk of what lies ahead.