A Look At Wednesday’s Market Events

A Look At Wednesday’s Market Events

$AAPL, $BBRY, $SSNLF, $DLGNF

Wednesday will be a busy in the stock US market, it began Tuesday when Apple (NASDAQ:AAPL) reported its September Quarter results after the close. Those results will drive the early market action Wednesday.

The later the action will be influenced by the wordology nuances of the FOMC lateest policy directive.

I. Apple Fiscal Fourth Quarter Earnings Report (after the close on Tuesday, October 27)

Why it is important

1. Apple is a widely-held stock by retail and institutional investors
2. Apple is the most heavily-weighted stock in the market cap weighted S&P 500, the most heavily-weighted stock in the market cap weighted NAS 100, and the 8th highest-priced stock in the price-weighted Dow Jones Industrial Average
3. With a huge installed base of Apple products around the globe, the company’s performance is watched closely as a gauge of consumer spending activity
4. Concerns about tough comparisons have weighed on the stock, and have given rise to an unfamiliar sense that Apple is at risk of disappointing with its results and/or guidance. The stock has potential to move big in either direction based primarily on the company’s guidance.
5. A disappointing Q-4 revenue outlook from supplier Dialog (OTCMKT:DLGNF) Monday triggered assumptions that Apple is at risk of disappointing with its guidance, too

Key items for assessing its earnings report

1. iPhone 6S and 6S Plus sales, the pace of unit growth, and guidance for the December quarter
2. Market analyst estimates for iPhone unit sales in Dec Quarter in the range of 74-80-M, Apple had 74.5-M unit sales in same frame a year ago
3. The performance of its “Other Products”, the Apple Watch, iPod, and Apple Pay
4. Contribution from Apple Watch accounted for over 100% of the Y-Y growth in this category in Q-3
5. The cannibalization factor, i.e. how much iPad business has been lost to the larger display size of iPhone 6 line
6. The performance of its three largest geographic regions
   a.Americas segment accounted for 36% of F-Y 2014 net sales
   b. Europe accounted for 22% of F-Y  2014 net sales
   c. Greater China accounted for 16.3% of total F-Y 2014 net sales, China is seen as company’s most important growth market
   d.Average selling price and gross margin trends

Apple’s F-Q-4 guidance following its Q-3 report in July

1. Revenues of $49 – 51-B
2. Gross margins of 38.5% to 39.5%

What’s in play?

AAPL (NASDAQ)

Smartphones

1. Samsung (SSNLF)
2. Blackberry (BBRY)

Component suppliers

1. Avago Technologies (AVGO; Apple more than 10% of fiscal 2014 sales)
2. Cirrus Logic (CRUS; Apple was 72% of fiscal 2014 sales)
3. InvenSense (INVN; Apple 30% of fiscal 2015 net sales)
4. SanDisk (SNDK; Apple 19% of fiscal 2014 revenue)
5. Broadcom (BRCM; Apple 14% of fiscal 2014 net revenue)
6. Qualcomm (QCOM)
7. NXP Semiconductors (NXPI)
8. Analog Devices (ADI)
9. Skyworks Solutions (SWKS)
10. On Semiconductor (ON)
11. Western Digital (WDC)
12. Segate Technology (STX)

Other Companies

1. TTM Technologies (TTMI; Apple 21% of fiscal 2014 net sales)
2. Jabil Circuit (JBL; Apple 24% of fiscal 2015 net sales)
3. Electro Scientific Industries (ESIO; Apple 9% of fiscal 2015 net sales)
4. Flextronics (FLEX)

Wearables

1. Fitbit (FIT)
2. Garmin (GRMN)
3. Fossil (FOSL)
4. Movado (MOV)

Computer hardware

1. Hewlett-Packard (HPQ)

Consumer electronics retailers

1. Best Buy (BBY)
2. hhgregg (HGG)
3. Conns (CONN)

Wireless carriers

1. AT&T (T)
2. Verizon (VZ)
3. T-Mobile (TMUS)
4. Sprint (S)
5. China Mobile (CHL)

II. FOMC Interest Rate Decision (2:00p EDT)

Why it is  important

1. The FOMC hasn’t raised the fed funds rate since June 2006, and has held the fed funds rate at Zero+since December 2008
2. What the FOMC decides to do with its policy rate will have wide-reaching implications for capital markets around the world
3. Any decision by the FOMC will likely involve emphasizing the encouraging position of the US  economy relative to other economies and a desired path toward policy rate normalization. That emphasis could stoke interest rate differential trades that draw capital away from foreign economies where lower market rates are in place.
4. The meeting will produce an updated policy directive that will either feed or starve the idea of a rate hike from the FOMC before the end of the year

A closer look

1. The fed funds futures market shows a 5% probability of a rate hike at the October meeting
2. The fed funds futures market shows a 34% probability of a rate hike at the December meeting. The market, then, could be taken by Bearish surprise if the Fed directive points to an increased likelihood of a rate hike at the December meeting.

What’s in play?

1. Everything is in play when the FOMC releases a policy directive. The question is whether the market response will be Bullish, Bearish, or Neutral.

The following areas are apt to see increased trading activity based on market interpretation of the FOMC directive

1. Treasuries and related bond ETFs
2. ProShares UltraShort 20+ year Treasury (TBT)
3. iShares 20+ Year Treasury Bond (TLT)
4. iShares 1-3 Year Treasury Bond (SHY)
5. Schwab Short-term US Treasury ETF (SCHO)
6. iShares iBoxx $ High Yield Corporate Bond (HYG)
7. SPDR Barclays High Yield Bond ETF (JNK)
8. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
9. iShares Floating rate Bond ETF (FLOT)

U.S. Dollar and related ETFs

1. DB USD Index Bullish (UUP)
2. DB USD Index Bearish (UDN)

Rate-sensitive sectors like utilities, REITs, and financials and related ETFs

1. Utilities Select Sector SPDR ETF (XLU)
2. iShares U.S. Real Estate ETF (IYR)
3. REIT ETF (VNQ)
4. Financial Select Sector SPDR ETF (XLF)
5. SPDR S&P Bank ETF (KBE)
6. SPDR S&P Regional Banking ETF (KRE)
7. SPDR S&P Insurance ETF (KIE)

Volatility ETFs

1. iPath S&P 500 VIX ST Futures ETN (VXX)
2. ProShares Ultra VIX Short-Term Futures (UVXY)
3. Pro Shares Short VIX Short-Term Futures (SVXY)

ETFs and inverse ETFs for the major averages

1. SPDR S&P 500 ETF (SPY)
2. Short S&P 500 (SH)
3. PowerShares QQQ Trust Series (QQQ)
4. Short QQQ (PSQ)
5. iShares Russell 2000 (IWM)
6. Short Russell 2000 (RWM)
7. SPDR Dow Jones Industrial Average ETF (DIA)
8. Short Dow 30 (DOG)

Commodities

Fed funds futures

Stay tuned…

HeffX-LTN

Paul Ebeling

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