Apple Set To Kick Off The Week With A Bang

Apple Inc. (AAPL) is expected to report Q1 earnings Monday after the bell, and whether the report comes with good news or bad, it is sure to be a market-moving event. Current EPS estimates range from $1.71 – $2.27, with the mean coming in at $2.07. Apple is also expected to unveil its new product, likely a tablet computer of some sort, on Wednesday, a factor that may dilute the thrust of Monday’s report to an extent.

The median price target on Apple at the moment is $250. Some have targets as high as $280. That is a 32X multiple on FY 2010 earnings. Piper Jaffray analyst Gene Munster expects shares to gain ground following the report based on confidence that “Mac and iPhone momentum will continue into 2010.”

Apple spent most of last week in the red along with the rest of the market, losing 8% during a 3-day Wednesday to Friday slide. Volume was especially high on Friday, and one should always remember that as a high-Beta market leader, Apple is likely to sell off more than the general market on any given market slide. With many pundits opining that we are finally entering the long awaited market correction, it is especially important to keep this in mind.

Additionally, several big-cap tech leaders, including INTC, IBM & GOOG, have beaten estimates over the last 2 weeks only to be sold off following the good news. Apple does, however, have in its favor that whereas INTC and IBM hit 52-week highs leading into earnings, Apple has sold off sharply.

I would recommend staying on the sidelines for this one, and buying some protection if you’re sitting on big gains. The market is in a very tenuous position right now, and if we are to experience a significant correction, it won’t matter how much Apple beats by, it will still go down. On the other hand, a significant beat followed by heavy buying could be exactly what the market needs to turn around and resume its up-trend. So, keep a close eye on this one, and trade the market that’s in front of you after the report rather than getting in ahead of it.

Disclosure: No positions in AAPL, INTC, IBM, or GOOG.

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