Apple (Nasdaq: AAPL) Trade Update

Following up on our aggressive Apple (AAPL) buy call on the day before Apple reported blowout earnings, we were fortunate to have access to sources that provided us enough market color to give us the ability to publicly announce a 70% PROBABILITY that Apple would beat the highest earnings estimates from analysts, the stock reached our upside target and has now retraced and is approaching previous resistance. As the chart below shows, the Sequential count is currently running at 8, without an interruption, and as you know a signal is generated at 9. Moreover, there are multiple convergence zones of key indicators and price points from moving averages to Fibonacci Retracement and Fibonacc Projection lines. When this kind of convergence takes place near the prior monster breakout, there will be tremendous interest from institutions to increase or open their positions in the stock as theyve now learned Apple is making approximately $65mm in profits PER DAY, and its just getting warmed up with the new Apple watch and the 2nd quarter of iPhone 6 sales which channel checks suggest are very strong.

Therefore, the strategy is to begin rebuilding a long position in Apple as it approaches the $120 level. Theres no need to get impatient, the overall market is in a corrective phase as we predicted would happen in March, because all the indixes hit new highs and then registered classic Doji Reversal bars.

Apple (APPL) 70% Probability to Smash Upside Earnings Projections

With a market cap of $659 billion and 5.6% of the S&P 500s preferred earnings, Apple Inc. (AAPL ) is the most influential company in the index. If Apple were excluded from the index, year-over-year earnings growth would decline to 2.3% from the S&P 500s expected Q4 2014 growth rate of 3.4%.

When the company reports after the close on Jan. 27th, our models predict Apple will beat earnings a wider margin than expected .

EXHIBIT 1: Analyst Revisions Model Components

Analyst Expectations Have Been Rising

Analyzing analyst revisions, our Analyst Revision Model measures sentiment and revision momentum. Its registering an unusually high score of 93 out of 100. This suggests analysts have become more bullish on the companys fundamentals as more data becomes available regarding the companys performance over the holidays. Its widely expected that Apple will report strong holiday sales results boosted by shipments of the new iPhone 6 along with higher than expected average selling price per unit. As a result, analyst revisions over the past three months have been across the board and significant. Revenue, EBITDA and EPS have all been raised, some by significant amounts. More importantly, analysts that have been aggressively raising their estimates include those rated as 5 Star analysts.

Over the past 5 weeks, weve seen the I/B/E/S consensus for earnings rise approximately 2.6% to $2.60 per share for Q1 15. By putting more weight on the most recent estimates and most accurate analysts, the number were predicting is closer to $2.69 a share, which translates to surprise of 3.4%. Historically, when the surprise number has been greater than 2%, the company beats estimates 70% of the time. Additionally, correctly predicting the direction of future earnings revisions and earnings surprises gives investors a good chance of predicting which way a companys stock price will move, but in this case, the move is likely to be an event of significant magnitude and weakness in the stock during Tuesday is actually a great contrarion indication. Theres some shaking of the tree to get weak hands and fast money out of the stock, and a lot of selling by option market makers as they offset the surge in call buying.

A total of 16 analysts have raised estimates since January 8th. Thats 100% of the top analysts tracked. In fact, three very aggressive estimates have come in between $2.79 and $2.81 per share, one of them being a 5-star rated analyst. This strengthens our belief the company will beat earnings estimates enough to close the overhead gap at $113 and likely open around $114.50-$115. If the stock opens anywhere north of $114.50, this is a significant technical event with huge implications for further upside. Anytime a stock gaps above the high of the previous 3 days after a decline on an opening gap down to test key support levels, the odds that the stock will trade lower into the gap are significantly diminished.

Earnings Quality is as Important as Earnings

The quality of earnings has repeatedly been an important indicator; those companies whose earnings come from sustainable sources are likely to generate better financial results over the longer term. Apple scores 90 on a scale of 100, which is a strong bullish signal. A look into some of the models components helps to show why Apple scores so highly.

Apples trailing four quarter operating profit margin vs. industry median

Respectable Peers

Apple scores 83 out of 100 in operating efficiency, similar to the Technology Hardware, Storage & Peripherals industrys score of 82. However, Apples trailing four quarter operating profit margin for is far higher than industry median: 28.7% for Apple vs. the industrys 9.4%.

Apples quarterly cash flow from operations vs net income

Cash Growing on Apples Trees

Strong cash flows are of course another major indicator of good earnings quality, and the cash flow earnings quality component score of 98 indicates Apple ranks among the top. With over $10.2 billion in cash on its balance sheet, Apples cash flow from operations exceeded net income over the past 18 quarters. Additionally, trailing four quarter free cash flow has increased 10% year over year to $50.1 billion while net income grew 6.7% to $39.5 billion.

Investors will look to Apples earnings call to learn more about Apples performance and outlook in China, which has a larger and faster growing mobile market than the U.S. Tim Bradshaw The Financial Times reported on Jan. 26 that Apple is expected to show sales of roughly 2 million more iPhones in China than the U.S. Investors will also look to gain insight into Apple Pay, foreign currency impacts, expectations for Apple Watch, and plans to return cash from the balance sheet back to investors.

It will be a significantly volatile event and trading will likely be frantic after the earnings number and during the call. There will be a lot of algorithmic noise until the market opens again on Wednesday. Weve seen prices trade far higher than where they actually open. Therefore, if youre taking a bullish bet on the numbers, dont shy away from taking profits during after hours trading rather than waiting for the open. On the other hand, if youre betting against Apple, this might be a good time to rethink that bet.

Cloud Storage and Backup

Ive always kept abreast of the newest players and advancements in cloud applications, including predictive analysis, cloud computing, and off-site backups. In the case of using the Cloud to back up data, this should always be your 2nd or preferably your 3rd line of back-up. Cloud back-ups are notorious for becoming corrupt, suddenly becoming inaccessible with your file name showing in the file tree but file size shows up as 0. Of course, when you call the Cloud company to complain, they will always find a way to blame you for it by using excuses like you did not allow your back up to complete entirely and they top it off with a sorry, we cant recovery your lost back up files.  Absurd but true. Which is why I use first a hard back up of my data, which is done on a weekly basis and kept in a safe, then I use networked attached storage for daily back-ups so I can access this data as needed, and lastly, Ill use the Cloud for a third level of back up, specifically with files which are NOT sensitive but I would like to have access to from anywhere at anytime.

There are so many companies offering Cloud Backup and Cloud Storage that finding the right solution is often a nightmare. To make matters worse, there are several companies which use the same back-end technology, almost identical front-end graphics or GUI, but their billing models are entirely different. These days, BOX, OneDrive, DropBox and Google Drive offer large storage space, but never enough for a full system backup including videos or any files larger than 5GB.  Moreover, any of these free Cloud Storage drives are hardly setting the bar for security, so I use them only for working files and I always password protect the files. Almost on a daily basis, we here about sensitive information being leaked that was stored in the Cloud by someone who thought storing pictures that would be totally inappropriate for public dissemination are for some reason safe in the Cloud. Nothing is safe in the Cloud. The encryption is only as strong as the company storing the data, and there are always employees who think its funny to leak these pictures. More sensitive data like financial information should NEVER EVER be stored in the Cloud. If you do and it gets hacked, you can only blame yourself. So never back up pictures or videos you wouldnt want to get released to the public, or any sensitive data that requires absolute security.

However, for everything else, theres a new service I came across called NitroFlare.com.  This service is not only free, but it gives you 10TB of storage capacity, plus if you want to make some of your media available for download by others, NitroFlare will share 70% of the revenue with you!  This is by far the most cost effective platform with the most amount of storage space, and if you hit that 10TB limit (for some reason), then theyll bump it up. Just ask!