Wall Street Pit

Apple (AAPL) Tactics Before Earnings

People keep asking me my thoughts on Apple (NASDAQ:AAPL), so here they are! I do trade AAPL very frequently, and believe like I have a good feel for its technical action.

AAPL has has pulled back almost 80 points in the last few weeks with some heavy selling taking place. The level to get stopped out was around $680ish when it broke its 21-day moving average, which would have saved a significant amount of pain. If you are flat after a big pull-back and avoid holding the stock during that downside, it gives you more confidence to buy the deeper dip.

As a general rule of thumb, I don’t like to take stock into earnings. I feel that playing stock through earnings is nothing more than gambling, and I prefer to align risk-reward in my favor on every trade. I trade stocks after earnings reports, occasionally after hours but more frequently in the subsequent sessions.

Sometimes what I will do, though, is make a calculated options trade. I prefer options plays because they can give me defined risk that I am comfortable with. If you are an AAPL bull and want to be involved through this earnings report but are worried about missing a potential gap up, go with a Call spread. With a Call spread you get upside and you help finance it since the premiums are so high, you don’t want to do a straight buy.

This type of trade can alleviate your anxiety about missing the opportunity if we see a strong report. If the strategy doesn’t work because of soft report or very conservative guidance, you then can get ready to buy the stock in a few sessions around the 200-day moving average, which stands around $585. With a stock like AAPL, I believe you can trust buying dips into key levels like the 200-day.

If you are planning to trade AAPL after-hours, just keep in mind that most think this quarter won’t be as great as once expected due to supply constraints with the iPhone 5. This is only my opinion, but I an “in-line” report may be OK for AAPL after such a steep drop heading into the report. The numbers for such a report would be 25 million iPhones and 17 million iPads. I think the next quarter guidance they issue tonight will be important. AAPL has a reputation for entering conservative guidance, but I think the company will need to address how pent up demand for the iPhone 5 will be met over the next quarter, and how it will effect EPS and revenues. Also listen for iPad numbers. Some think numbers will be light. The introduction of the mini iPad could also lead some tablet buyers to forego purchase of the larger iPad.

Key levels to watch: Resistance at $644-651 and then $661-664. Support at $609.50 then $600 with a major support level at the 200-day around $575-585.

Disclosure: Scott Redler is long AAPL 635 calls. Short AAPL 650 calls.