ETF Needs Big Apple Surprise

PowerShares will need a big push from Apple's earnings today to reach a new 52-week high.
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NEW YORK (TheStreet) -- Apple (AAPL) - Get Report reports second quarter earnings Tuesday.

Estimates have been climbing over the past few days, finishing at an average estimate of $2.45 per share today, far above the $1.75 per share that was predicted three months ago.

At nearly 17% of

PowerShares QQQ

(QQQQ)

, Apple will play a big role in determining whether this ETF can climb to a new 52-week high.

Shares of QQQQ, which closed at $50.13 on Thursday of last week, a day before the

Goldman Sachs

(GS) - Get Report

news shook the market, need to gain 1.3% to retake that level as of Monday's close.

Whether Apple generates a positive move in its share price and a concurrent move in the broader technology space will have a lot to do with sales of its iPad.

Although the device will not factor into this quarterly earnings report, investors are looking ahead to next quarter and beyond. Apple announced a delay in shipments for the 3G iPad due to strong demand, with new pre-orders delayed a week for the device. An international version of the iPad, which was supposed to launch on May 10, was also delayed due to strong domestic demand.

Annual sales estimates range from more than 2 million devices all the way up to 7 million. The mix of sales between WiFi only and 3G will be important because the 3G models figure to boost Apple's margins on the product because it add only a small cost to Apple while providing a large price increase.

Still, for the moment, the iPad is a small part of Apple's business. Even if sales hit optimistic target of 7 million by year-end, that's less than the 8.7 million iPhones the company sold in the first quarter.

Earnings in the second quarter ended March 31 will depend heavily on sales of the iPhone and applications for the device. Since recurring revenue from apps sales relies on sales of the iPhone, sales numbers will also be important for future earnings.

A strong report from Apple would be welcome news, but the action in Apple's share price will be more important for holders of QQQQ, and the behavior of Apple stock, in turn, will be determined in large part by what investors have already priced into Apple shares. With optimism about the iPad running high, it may take a very positive surprise to move the broader technology market higher, as recent positive reports from other companies have failed to lift the sector.

Google

(GOOG) - Get Report

reported solid earnings last Thursday, only to see shares fall after hours and on Friday.

IBM

(IBM) - Get Report

beat analyst estimates when it reported Monday after the bell, but shares opened 2.5% lower on Tuesday. Investors may be focused on a decline in service contract signings at IBM, but technology is broadly weak today.

If Apple can't break the spell, investors can look forward to earnings from

Qualcomm

(QCOM) - Get Report

on Wednesday and

Microsoft

(MSFT) - Get Report

on Thursday. These two companies make up 4.7% and 5.1% of QQQQ, respectively. After these heavyweights,

Cisco

(CSCO) - Get Report

, with 3% of assets, reports in mid-May.

I continue to hold shares of QQQQ for my

ETF Action Newsletter

and view weakness in technology shares as a buying opportunity for those who have sat out this rally.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion was long PowerShares QQQ.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.