US stock futures are set for a higher open Wednesday morning on the heels of a blockbuster earnings report from Apple Inc. (AAPL). The tech giant greatly exceeded even lofty consensus estimates from Wall St, thanks in large part to tremendous iPad and iPhone sales. The stock is currently set to open up around $400, up 6% from yesterday’s close. Strength from the market leader provides a big boost to indices a day after they broke out of nearly two-week downtrends.
Apple is not the only tech company to exceed Wall St expectations. The trend of strong earnings during the economic recovery–in the absence of job growth–continues to provide a timely boost to the market each quarter. Earlier in the season Google Inc. (GOOG) jumped sharply on earnings, along with International Business Machines (IBM) earlier in the week. Last night we also saw cloud leader VMWare, Inc. (VMW) jump sharply after its report. The picture wasn’t all rosy last night, as a lackluster report from fellow cloud stock Riverbed Technology, Inc. (RVBD) is down 22% overnight.
Also boosting the market yesterday were more suggestions that squabbling Washington politicans are nearing a deal to raise the debt dealing and avoid a US default, which includes a 3.7T deficit reduction plan. Asian markets responded in kind to this news overnight.
The SPY still has a little ways to go to fill a gap from Monday, July 11th, and then the $134 area should pose a bit of resistance. We have seen a see-saw rangebound type market of late, which has been customary over the past few summers. Just when it appears bears have seized control of the proceedings, we see a strong bounce that squeezes them out. The recent two-week pullback could be seen as a knee-jerk reaction to the possible debt-ceiling inaction, but it seems highly unlikely that lawmakers will allow such a catastrophic event to happen on their watch.
Either way, the biggest key to risk management and staying profitable in a range-bound summer market is to never chase. It is OK to miss a move, it is not OK to be the trader being greedy and chasing a big move only to get caught in the snap back. We should get some rest that could form new bases to buy breakouts.
By: John Darsie
Disclosure: Scott Redler is long SPY