New Leadership Helps Market Move Forward with Apple (AAPL)

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The market stretched its legs to new five-year highs again Friday despite ongoing weakness from Apple (AAPL).The Dow and S&P both finished the day 0.5% higher. It is healthy to see the S&P hold above the psychological 1500 level that was breached yesterday, and there is a clear underlying bid to this market. It's hard to initiate new longs up at these levels, but that doesn't mean the market is a short either. Cash is a position, too.

The former market leader AAPL has dropped almost 40% since topping out above $700 last September, and that sell-off accelerated in the last few days following a weak earnings report. The stock has shown no signs of life since the earnings gap down, and finished today down another 2.0%. AAPL is now in the middle of the gap from early 2012, and it would seem logical to see a move down to fill that gap at $425. Sentiment has grown decidedly bearish on the stock, which puts me on alert for potential buying opportunities.

Netflix (NFLX) was able to off-set AAPL's weakness today with a potent extension higher following stellar earnings. The company had been left for dead after at one time, like AAPL, being a momentum darling that could seemingly do no wrong. The stock rested during yesterday's session after gapping up nearly 40%, and today tacked on another 15.7% of gains. It's hard to initiate new longs in NFLX up here after it has surged nearly 70% in two days, but it serves as a lesson about what can happen when heavily shorted stocks beat handily on earnings. NFLX had a 24% short interest heading into earnings, and those shorts are getting squeeze in a big way right now.

Overall this is not a time to get exuberant, but rather one to take a step back and wait for the next calculated set-up to develop.

Looking to get educated on how to trade earnings season? Take a 5-day free trial to any one of our mentoring rooms.

*DISCLOSURES: Marc Sperling is long UA, BBY, FB, OCN, PANW, LNKD, RIMM, GMCR, CMG, MA, SSYS, VXX, EXPE, GNRC, TSL, ZNGA, DRYS, BAC, ANTH, SHOS. Long calls in the following stocks: AAPL, CMG, RIMM, LNKD, FB, HLF, DNDN, AIG, MLNX, DELL, X, UA, GRPN, GE, S, DRYS, ZNGA, PANW.

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