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I On The Market - Wednesday Update - 04/25/2012

 April 25, 2012 09:45 AM

(By Rich Bieglmeier) iStock said Apple Inc. (AAPL) would earn $11.49, a $1.49 more than Wall Street's estimate of $10. Well, we were wrong. The tech titan earned $12.30 for its first quarter. While we were off,  iStock was much closer to the final result than Wall Street's million dollar analysts.

AAPL's profit news should propel the NASDAQ up to its 50, 26, and 12 day averages which essentially share the same neighborhood at 3020ish. If we are correct, it will be a return trip to Monday's trend-line breakdown. The $64,000 question is whether Apple's earnings will be enough to reverse April's downtrend.

[Related -Apple Inc. (AAPL): How Q1 Earnings Will Fare?]

From a technical perspective, we want to see if the NASDAQ rallies and closes beyond 3050. In the subsequent sell-off, does the index find a low below 2950, or settle at a higher level than today's close before u-turning. The answer will determine if April's showers will give way to May's flowers or heavier rain.

We will be watching so you don't have to and report the results to you.

So far, the headlines for the first quarter have been 80% upside earnings' surprises. While the number of companies topping Wall Street's estimates is impressive, the growth rate has been anything but impressive.

As of Friday's close, 112 S&P 500 companies have reported earnings totaling $98.39; last year's total for the same companies was $95.42, which is a lackluster 3.11% earnings' growth.

[Related -Apple Inc. (AAPL): iPhone Trending into Another Carl Icahn Disappointment?]

iStock believes this is the clearest explanations as to why stocks have faltered during a season of better than forecasted result; more sizzle than steak. Maybe Apple changes all that today, maybe not.

Trade of the Week Update:

We are still waiting for CARBO Ceramics Inc. (CRR) to report its first quarter earnings results before the market opens Thursday. Remember, we think the oil & gas equipment & services company will miss earnings by at least 5 cents. Wall Street's estimate is a $1.42 and the iStock iEstimate is $1.37.

Since Monday's open CRR is up $2.50. As we mentioned in Monday's i On the Market, CARBO tends to be volatile in the days around earnings, moving by at least 10% in its last five quarterly check-ups.

An options straddle using May $90 calls and puts could be an inexpensive way to trade CRR's earnings. The May $90 calls closed yesterday with an ask price of $3.50 and the $85 puts at $7.60, which would be a total investment of $1110 per put/call contract.

If the stock has its average reaction from its last five earnings announcements of 16%, the price would move $14 in the days surrounding the announcement. Based on last night's close of $87.69, it would put CARBO at $73.69 on the downside and S101.69 on the upside.

If CRR beats and makes its average $14 move, the call should tack on $9 to $10, while the put would be worthless. On the low end of our hypothetical trade, the $90 call would be worth around $1250 – a $140 profit on a $1110 trade.

If CRR misses, as we expect, the $90 put would add roughly $10 to $12 to the put with the average move, making it worth somewhere near  $17, or $1700 per contract (of course the call will be worthless) a potential $590 profit on our imaginary $1,110 straddle.

We will update the final results in Friday morning's update.



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