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What Traders Are Watching Now as Earnings Season Rolls On

The big story in earnings season this week was obviously going to be Apple (AAPL) and subsequent reaction from investors. While the iPhone/iPad maker delivered on results and perhaps even

The big story in earnings season this week was obviously going to be Apple (AAPL) and subsequent reaction from investors. While the iPhone/iPad maker delivered on results and perhaps even surprised shareholders a bit with an aggressive plan to return some cash, it failed to generate any excitement for the future. The initial response from investors was lukewarm at best.

In this week’s interview with Toni Turner of TrendStar Trading Group, we discuss Apple’s prospects going forward, as well as other key areas of the market investors and traders should be looking at.

EQ: Arguably, the biggest individual story this earnings season for investors was Apple (AAPL). Yet, despite some major news on Tuesday, the stock was most unmoved. What were your thoughts on this?

Turner: After the bell Tuesday, Apple announced a large stock buyback and a big dividend hike along with better-than-expected second quarter earnings results. However, the earnings did decline and the tech icon also issued weak guidance going forward. Now, Apple earns $10.09 per share and that’s great, but it was off by 18 percent versus the same quarter a year earlier. That’s still better than the $10 per share that was expected by Wall Street.

Now, any way you look at it, Apple is a victim of its own success. To me, it’s created its own monster. It faces very difficult comps, and has created such an incredible record. A year ago, it saw 47 percent gross profit margins. So I think it’s created its very own monster and it’s going to be very hard to top its own incredible numbers to continue to raise investor expectations, at least in the near term.

EQ: One of the key areas of the market you’ve been watching is small cap stocks and iShares Russell 2000 Index (IWM). What is that telling you right now?

Turner: As you know, the IWM represents an index of small cap stocks known as the Russell 2000. Many of those are domestic stocks, and I watched the IWM to see if it agrees with moves of the broader market like the S&P 500. Right now on the IWM, the average true range (ATR), which measures volatility, is climbing and that indicates dissension between the bulls and the bears. The daily price points are widening, and that is the definition of volatility. Now, it appears last week that the IWM was going to complete a head-and-shoulders pattern, which is a top-reversal pattern that can get very ugly. However, the IWM reversed higher again on Friday and saved us from that fate. The ETF is still volatile, but it is rising now, so I will continue to watch it as an indicator of underlying market strength or weakness.

EQ: We’ve got some big earnings releases coming out towards the end of the week, particularly in biotech and energy names. Are there any ones that you’re watching intently?

Turner: I think everyone’s watching’s (AMZN) earnings coming out Thursday. It’s basically been trading in a range here since the first of the year, and I’d like to see if it can break out of that range or not—perhaps break above $275. I’m also watching Exxon Mobil (XOM), which is one of my favorite companies. It’s recently fallen on lower oil prices, but it also sold to support at $85 and reversed right back up in a hurry. It’s now back up trading at around $89.50. So I’m going to watch Exxon closely to see exactly what they come out with for the integrated oil companies.

UPS (UPS) is one I’ll be watching for the Transports to see if it could maintain its current levels, up around the $83 area. Of course, I’m going to watch Biogen Idec (BIIB), which has skyrocketed with a rising ATR. Biogen comes out on Thursday, and I know the biotech stocks have really flown since we discussed them a little while ago. I am very anxious to see if Biogen can maintain these heights. This is a space I like, and my feelings wouldn’t be hurt if it pulled back a little bit to offer another entry opportunity.

EQ: Are there any other sectors or industry groups that you’re monitoring closely right now?

Turner: One I’m looking at that I don’t think we’ve discussed before is Global X Fertilizers ETF (SOIL) for a possible bottom reversal. I’m watching that ETF, not so much as a trade because it doesn’t have nearly enough volume, but for indication that perhaps this particular industry group can pull itself out of its current misery. It’s been withering since the first of the year and I would like to see if this is the low for this downtrend. One of the component stocks in that ETF index is Potash (POT), which is coming out with earnings on Thursday. So I’m interested to hear what Potash reports, as well as Scott’s Miracle-Gro (SMG), which is also in that space with other fertilizer stocks.

EQ: Is this something you’re watching alongside Market Vectors Agribusiness ETF (MOO), which was one group you mentioned a few weeks ago?

Turner: Yes, I like MOO. I do worry here that it’s only made one pivot low last week. For bottom reversals, if it’s going to make one pivot, then I’m going to wait until it pulls back and makes a higher low. A lot of these stocks have done that.

As the markets put the debt ceiling debacle in the rearview mirror, more than a few issues remain open.