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Minyanville's T3 Morning Market Call: Futures Flat as Investors Sour on Apple


Immediately after the earnings report, AAPL traded up around 5%. But as investors combed through the report and listened in on the conference call, they found many things not to like.

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US stock futures point to a slightly higher open as the market looks to extend its win streak to four days. Last week indices looked poised to perhaps test deeper support levels, but dip buyers stepped in once again to put the market back on course for highs. With some of the bearish patterns that formed in key sectors last week, though, it's hard to chase three days of bullish price action. Many traders are likely in wait-and-see mode at this stage.

We are in the thick of earnings season, and last night we got what now appears to be a polarizing report from Apple (NASDAQ:AAPL). The company beat narrowly on the top and bottom lines, and beat estimates on its key iPad and iPhone products, but saw margins come in below expectations. Perhaps most significantly, AAPL announced it will return $100 billion to shareholders by 2015. It announced a $60 billion additional stock buyback and raised the per-share dividend by 15% to $3.05.

Immediately after the report AAPL traded up around 5%, but as investors combed through the report and listened in on the conference call, they found many things not to like, and the stock is now 3% lower this morning. The margin compression, decelerating growth, and weak guidance are obvious concerns, but many also perceived the new capital plan as a half-hearted attempt to placate angry shareholders. The vast majority of the company's cash hoard sits in foreign tax havens, so AAPL is borrowing to increase its dividend because of the relative costs. The chances of AAPL ever repatriating foreign cash seems very slim. It will take a much more aggressive capital plan to win over value investors, and AAPL will likely need concrete news of new, potentially lucrative product lines to ignite the stock.

Yesterday we saw the banks emerge from their post-earnings malaise and take a leadership role in the rally. Each earnings season, leadership in the group often gets reset based on the who has the cleanest earnings report. Citigroup (NYSE:C) fits the bill this time around, and it is showing relative strength over the past week. Yesterday Citi closed up 2.90% and has its sights set on the $46.78 pivot, and then perhaps 52-week highs are $47.92.

Bank of America's (NYSE:BAC) were not quite as stellar, but an upgrade from Morgan Stanley (NYSE:MS) yesterday propelled the stock to a 2.99% gain.

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Scott Redler is long AAPL call spread (long 405, short 430), C, BAC, LNKD, SSYS, TBT, DDD. Short SPY.
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