Apple Earnings On Tap: IYW In Focus

by on October 25, 2012 | ETFs Mentioned:

Major equity indexes briefly peered into positive territory yesterday as profit-taking pressures permeated Wall Street shortly after the opening bell. The bulls tried to take charge after better-than-expected Chinese manufacturing data and solid housing numbers were revealed at home; new home sales in September came in at 389,000, topping estimates of 387,000. Pessimism ultimately prevailed after the latest FOMC statement cited that the U.S. economy is still growing modestly while unemployment remains elevated [see Free Report: How To Pick The Right ETF Every Time].

Earnings seasons continues at home, and with tech-juggernaut Apple (AAPL) slated to report after the closing bell today our radar will stay focused on technology ETFs as investors and speculators move in and out of positions ahead of results. Our ETF to watch for the day is the iShares Dow Jones U.S. Technology Index Fund (IYW, A-) as it holds the greatest allocation in Apple stock; this ETF has Apple as its number one holding, dedicating nearly a quarter of total assets to this behemoth alone [see High Tech ETFdb Portfolio].

Chart Analysis

After missing the mark last season, analysts are expecting Apple to rake in $36.3 billion in revenues for the quarter along with earnings of $7.65 per share. The stock’s recent decline has been a major culprit for weakness in IYW; since encountering resistance around $78 a share, this ETF has endured a fairly steep correction, sinking below its 200-day moving average (yellow line). Nonetheless, this ETF remains in a strong longer-term uptrend and, as such, its recent pullback may offer an attractive entry point for those bullish on the tech-sector [see 101 ETF Lessons Every Financial Advisor Should Learn].

Although this fund has a historical tendency to bounce off the 200-day moving average, we advise more conservative investors to remain on the sidelines until it is able to definitively establish support back above at least $72 a share [see also ETF Technical Trading FAQ].

Outlook

Since Apple reports after the closing bell, this ETF may see an uptick in trading activity throughout the day as traders position themselves ahead of the report. In terms of upside, IYW must first clear resistance at the $73 level before advancing any higher should Apple impress investors. On the other hand, a dismal report may send this ETF tumbling; in terms of downside, the next major support level fro IYW comes in at $68 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.