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MLR - Premarket Pulse January 24, 2013

Major averages finished slightly mixed on lower volume yesterday as they all moved to higher-highs, marking the sixth day up for the S&P 500. Futures are trading substantially lower prior to the opening bell due to the disappointment in Apple's earnings report.

Apple (AAPL) fell roughly -10% in post-market trading after reporting flat earnings for its first quarter, slightly ahead of Wall Street's expectations, but on revenue that was a little weaker than expected. Earnings came in at $13.81 per share and revenue jumped 18% to $54.5 billion while analysts expected earnings of $13.48 per share on revenue of $55 billion. AAPL gave a revenue forecast for the March quarter of $41-43 billion that was below Wall Street’s expectations of $45 billion, and didn't give an earnings forecast for the period, breaking with past practice. Gone are the days of AAPL's rapid ascent where it would double in price often within a year's time. AAPL's market cap of nearly half a trillion dollars means for it to double in price from here, it would have to reach nearly a trillion in market cap. Based on the lack of any killer apps in its pipeline, that is highly unlikely. Further, institutional sponsorship has declined 4 quarters in a row. Institutional sponsorship is ultimately what drives a big stock to even greater heights. Perhaps AAPL's days as a sprinter are over, much as many former leaders were at one time. Anyone remember the young, heady days of MSFT, IBM, CSCO, GOOG, and AMGN? Once those hot, beloved former leaders topped they never returned to their former glory, so bottom-fishers beware!

AAPL may be a shortable gap-down as it breaks down through the neckline in a head and shoulders formation, using the intra-day high of the day as an upside stop once the stock has put such an intra-day high in place. Based on pre-open trading this morning, 474 has been established as a high for today's trading although we would prefer to see a high established during regular market hours.

The market's trend remains to the upside, as it remains to be seen just how much of an afffect AAPL's dive has on the true market leadership. AAPL has underperformed throughout January, moving lower following its brief two-day gap-up on December 31 and January 2 even as the general market moved higher. Thus the market has already been ignoring AAPL's weakness, and it is likely that it will continue to do so. Pullbacks in leading stocks as a result of AAPL's weight on the futures this morning could present buying opportunities should such pullbacks occur in constructive fashion.

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