Catching up with the A-listers

01/29/21
  • AAPL released record-breaking earnings on Wednesday
  • GOOGL pivots in run-up to announcing its numbers
  • Some gold-mining stocks testing key support

With traders focused on mega-tech earnings this week and next, action in a couple of the best-known names—one that just released its numbers and another that’s about to—offer some insights into earnings season price action.

After the bell on Wednesday, our first A-lister, Apple (AAPL), posted record-breaking stats, surprising to the upside and topping $100 billion in revenue in Q4.1 So, there were probably more than a few knit brows yesterday as the stock closed down 3.5%:

Chart 1: AAPL (AAPL), 10/18/20–1/28/21. AAPL (AAPL) price chart. Post-earnings pullback.

Source: Power E*TRADE


Rather than try to rationalize why a stock would drop the day after releasing such good numbers and receiving a boatload of upped Street price targets, it may be more useful to simply look at the stock’s behavior after previous earnings releases.

Over the past 10 quarters, AAPL closed up the day after earnings seven times and lower three times (in each case it topped its headline numbers). Two weeks later the stock was higher eight out of 10 times. When it closed up the first day after earnings, the stock was higher two weeks later five times, with a median gain of 3%. When it closed lower the first day, the stock was higher two weeks later two out of three times, with a median gain of 6.5%2—and it’s worth noting the one time it wasn’t higher was after its November 2018 release, which occurred when the entire market was in the thick of its biggest sell-off in a decade.

In other words, a day of selling after an apparently strong earnings release doesn’t necessarily mean you’re “missing something” about the numbers, especially when talking about a stock that’s just a few days removed from a 14% up week and new record highs.

Another “A” stock that’s likely front and center on many trading screens is Alphabet (GOOGL), which sold off with the rest of the market on Wednesday before bouncing back with gusto in early trading yesterday:

Chart 2: Alphabet (GOOGL), 10/21/20–1/28/21. Alphabet (GOOGL) price chart. Breakout test.

Source: Power E*TRADE


Like AAPL, GOOGL is coming off record highs from last week. And like its big-tech cousin, it has shown a tendency to, more often than not, rally in the first week after earnings announcements.3 Unlike AAPL, it hasn’t released earnings yet—those are due next Tuesday.

What may have interested some traders was the fact that Wednesday’s low tagged the top of the one-month consolidation GOOGL broke out of last week. Sometimes traders hold back when an upside breakout first occurs (to avoid a potential false breakout, or “head-fake”), preferring instead to wait for prices to pull back and successfully test the breakout point.

Earnings season is often about volatility. Whether it works to a trader’s advantage can depend on how well they’re prepared for it.

Today’s numbers (all times ET): Employment Cost Index (8:30 a.m.), Personal Income and Outlays (8:30 a.m.), Chicago PMI (9:45 a.m.), Consumer Sentiment (10 a.m.), Pending Home Sales Index (10 a.m.).

Today’s earnings include: Phillips 66 (PSX), Eli Lilly and (LLY), Colgate-Palmolive (CL), Caterpillar (CAT), Chevron (CVX), Synchrony Financial (SYF).

 

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1 Barron’s. Apple Earnings Crush Estimates and the Stock Moves to Fresh Highs. 1/27/21.
2 Reflects Apple (AAPL) daily closing prices, 1/2/18–1/28/21. Supporting document available upon request.
3 StreetInsider.com. Google (GOOG) Earnings. 1/28/21.

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