Why an Earnings Miss Could Be Disastrous for Apple Inc. (AAPL)

Apple Inc. (AAPL) will report earnings after tonight's closing bell

Jul 21, 2015 at 11:29 AM
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Earnings reports have been all the rage in recent sessions, and for many, there are no results more highly anticipated than those from Apple Inc. (NASDAQ:AAPL). The maker of the MacBook, iPad, and Apple Watch will divulge its quarterly numbers after tonight's close. Here's extensive look at AAPL's technical and sentiment backdrops, as well as what the options market is expecting in the aftermath of tonight's report.

AAPL was last seen 0.7% lower at $131.15, and this is business as usual. The stock has seen advances capped in the $132-$135 range four times since the year began. Potentially reinforcing this technical resistance is heavy call open interest at the overhead August 135 strike, with more than 89,000 contracts in residence. In fact, since April 23, nearly 33,000 contracts have been bought to open at this strike, which could limit AAPL's upside in the short term.

Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) stands at 0.67. In other words, call open interest outweighs put open interest among options with a shelf-life of three months or less. This SOIR registers below 64% of comparable readings from the past year, signaling a stronger-than-usual bias for calls over puts, among short-term speculators.

Call buyers aren't the only ones bullish toward the shares. Of the 34 analysts covering the stock, 22 have doled out "buy" or better ratings, compared to a dozen "holds" and not a single "sell" recommendation. What's more, AAPL's consensus 12-month price target of $149.28 rests in never-before-seen territory.

Shifting back to earnings, the options market is pricing in an absolute move of 5.1% for the shares in the session adjacent to tonight's report, based on near-term at-the-money straddle data. Looking back eight quarters, AAPL tends to swing a slightly tamer 4.5% (in either direction) the day after the company enters the confessional.

Last time around, Apple Inc. (NASDAQ:AAPL) struggled in the aftermath of earnings, giving up its perch in the familiar $132 neighborhood. Specifically, the stock posted a single-day loss of 1.6%, and going out to 10 sessions, surrendered roughly 5%. Should history repeat itself, a capitulation among call buyers and/or a round of negative notes from analysts could serve as a downward catalyst.

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