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How to Manage Big Tech Earnings and Dodgy Index Action

Real Money’s James “Rev Shark” DePorre says indices are reliably unreliable when it comes to market realities. But there are two safe-haven for investors right now.

With earnings coming from Apple  (AAPL) - Get Apple Inc. (AAPL) Report, Microsoft  (MSFT) - Get Microsoft Corporation (MSFT) Report, Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report, Real Money’s James “Rev Shark” DePorre notes that indices are reliably unreliable when it comes to actual market realities. Now he says that unreliability is in overdrive.

This from DePorre:

“The indices often do a poor job of reflecting what is really going on in the market, but the extent and persistence of the recent misrepresentation are at extreme levels. As the S&P 500 continues to reach new all-time highs on poor breadth, the list of stocks that are hitting new 12-month lows and those that are in deep corrections continues to grow.”

Get more of Rev Shark’s latest investing ideas on Real Money.

"Last week there was a brief attempt to close the gap between the indices and the majority of stocks, but it barely lasted a day, and by Thursday the action had reverted to the same pattern of narrow index-driven strength.”

Apple posted much stronger-than-expected third-quarter earnings Tuesday as surging iPhone sales and a big comeback in China revenues boosted the tech giant's top and bottom lines.

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The latest from DePorre: “I am making a few new buys in beaten-down favorites such as Arlo Technologies  (ARLO) - Get Arlo Technologies, Inc. Report and Cresco Labs  (CRLBF)  … but I am moving incrementally and have plenty of buying power in reserve. Read over on Real Money: 10 Beaten-Down Favorites I'm Buying as Smaller Stocks Bounce.

Microsoft topped fourth-quarter estimates for revenue and earnings after the bell Tuesday, helped by big gains at its Intelligent Cloud and LinkedIn operations. The company reported diluted earnings per share of $2.17 on revenue of $46.2 billion.

According to DePorre, investors have two landing spots as “safe havens.” The rest is all up in the air, he says.

With the indices near highs and expectations for good numbers at elevated levels, the conditions for some "sell the news" action is good, but it seems almost too obvious to actually work, he says.

“We will see how this plays out, but right now, the big-caps and the indices are the safe havens, and that is where the money is flowing. Things like valuation and fundamentals just don't matter for smaller stocks or the wrong sectors such as biotechnology or cannabis.

DePorre said "... this is a very tough trading market. The best thing to do is embrace that fact and not fight it. The good news is that conditions will change, and the big earnings reports Tuesday night are likely to serve as a catalyst."