Can Market Absorb Weak Apple (AAPL) Earnings?

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The market finished in positive territory Thursday, but the action could once again be considered bearish after the S&P was unable to hold the gap up. The action has turned decidedly bearish over the last week due to a worse-than-expected earnings season. Analysts were forecasting one of the worst quarters for earnings in the last several years, but apparently the extent of the weakness was not yet priced into stocks.

After the close today the Big Kahuna reported earnings, and the numbers were not pretty. Apple (AAPL) missed by a wide margin again on earnings and slightly on revenues, but perhaps the most concerning figure was first quarter guidance for next year, which came in very light of expectations. The stock was halted during the report, but the Nasdaq ETF (QQQ) traded sharply lower when the numbers came out. Indications were that AAPL would trade sharply lower as well, but the damage has been very contained. The stock opened at $590, about 3% lower, and filled the entire gap in the first 10 minutes following the (un)halt. However, the stock is currently fading from those levels are trading around $600. In the end, the report may turn out to be a non-event that wipes out options premium.

(While concluding this report, AAPL has bounced back into positive territory after hours.)

Amazon (AMZN) also reported after the close, and similar to AAPL, bounced hard after initial weakness. AMZN was not halted during its report and traded down as much as 8% initially after reporting another quarterly loss. However, shares are now only down around 1.3%.

On the flipside, it appears that travel is booming as Expedia (EXPE) topped earnings expectations and is trading sharply higher. The stock is currently up around 15% after hours. Fellow discount travel stock Priceline (PCLN) (+ 4.8%) is trading higher on the heels of Expedia's strong report.

This earnings season has certainly not been kind to the market, but tomorrow could turn into a very key inflection point. If Apple and the market are able to shake of these weak earnings and turn positive tomorrow, it could suggest that all of the weakness may start to be priced into the stock and the market. Given how far AAPL fell into its report from highs above $700, it's not altogether surprising to see it hold up well following weak EPS.

*DISCLOSURES: Scott Redler is long AAPL 635 calls. Short AAPL 645 calls (for a call spread), and short SPY.

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