Apple earnings spark foolish knee-jerk reactions

With a limited knowledge base, people sent this stock down 15 points on hundreds of thousands of shares.

By Jim Cramer Oct 29, 2013 10:08AM

TheStreet.com logoApple CEO Tim Cook speaks in San Francisco, Calif., on September 12, 2012 (© Eric Risberg/AP)It happened again. It's just totally ridiculous. I'm talking about the moronic trading in Apple (AAPL) right after the headlines came out. What did you know? You knew that things were basically in-line on most metrics, and while you didn't get the big guide-down on gross margins, you didn't get much good news on that front, either.

 

Yet, on the strength of that limited knowledge base, people sent this stock down 15 points on hundreds of thousands of shares. It was lunatic.

 

If you were involved in this sham of a process, you rightfully got your head handed to you, because the earnings release didn't capture the main reason you might have been negative -- the reason why gross margin didn't go higher: Apple made an accounting change that depressed the announced gross-margin number somewhat artificially. Some revenue that would have normally been included in the quarter got deferred, and that fell right out of the bottom line.

 

It was pretty shocking to see the scramble back up when the explanation came out on the call.

 

We are dealing with complicated companies here. Their results are not lending themselves to headline-writers who do not understand the complexities that companies face when they try to make their earnings reports as simple as possible. The journalists who follow Apple are almost all uniformly excellent but, in the end, they are in a race to get the story told. This is race in which there are no winners, because they are all looking at the same models of and the same analysts' forecasts and plugging in what they see and spitting out a story that has none of the nuances of what management might have to say on the quarter.

 

It's not just Apple. We saw the identical kind of nonsense occurring with Eaton (ETN) last Friday when, you learned, only on the conference call, that orders had turned up in the last month of the quarter and had gotten better in October. A stock that's down $1 is suddenly up $3 not long after.

 

We even saw it with Merck (MRK) in premarket trading, too. Taking the other side of the buyers there, enthused by an earnings-per-share beat, was like taking candy from a baby, because the revenue was weaker than expected. Plus, any cursory look at the release told you that the much-vaunted diabetes franchise, a big growth engine for a company without a lot of engines, had declining sales. That was a total shocker.

 

Sure, there have been plenty of instances when it's been worth beating people to the punch. I have seen times this year when so many people had been short the stock of a company with good news that sometimes, psychologically, it was just worth it to take some in when the shares were up a bunch of points. The possibility of a monster squeeze that can wreck a month, after all, is always on the table.

 

For the most part, though, it has been a stupid thing to do. And, for the life of me, given all of the metrics that now determine what happens with a stock, many of which you do not even hear about until right before the question and answer session, it's often more worthwhile just to take the other side of the trade.


Jim Cramer's headshot


At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL and ETN.


 

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319Comments
Oct 29, 2013 10:30AM
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"people" sent the stock lower or was it the computer trade algorithms? 

 

don't the institutions buy the overwhelming number of shares?  don't the institutions use the computer trade schemes? 

 

blame it on the people or blame it on the institutions?  which is it? 

 

 

Oct 29, 2013 11:23AM
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LOL
They removed my post about Cramer, hit a nerve did I?????????
Oct 29, 2013 1:47PM
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The media treatment of Obama has changed over the last couple of weeks.

 

Thumbs up = True

Thumbs down = False

Oct 29, 2013 10:35AM
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I love the "Falling Food Cost" story............. LMFAO...
Oct 29, 2013 1:01PM
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NTU - I think you hit it on the head. The cyber attack was launched from Crawford , TX
Oct 29, 2013 7:46PM
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Love ,,, I am always CIVIL when spoken too respectfully 

Oct 29, 2013 4:59PM
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CHRIS SAID
Classic said " they're doing so for purely selfish reasons"
I've learned not assume what's in the minds and hearts of others.

GREED Whether it be for monetary purposes or VANITY  is a powerful motivator
Oct 29, 2013 1:08PM
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WOW - Susan Sommers - just called Obumacare a "socialist ponzi scheme"

NOW Hollywierd is turning on our Dear Leader ?


Oct 29, 2013 10:58AM
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Tog
Apple is one of the worlds largest companies and has many die hard fans, as well as haters.  Anything they do always becomes big news.  Although those articles could have been condensed into one informative article instead.
Oct 29, 2013 7:04PM
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LOVE
Very simple explanation why the Republicans are PISSED

 RECONCILIATION is a legislative process in the Senate commonly used to pass legislation concerning spending, revenues or the debt-limit. The process has been used 22 times since 1974. More often than not, these bills have been vehicles for large reforms in the tax code, health care and other social programs from education to welfare. One key reason that reconciliation is used for major reforms is that the process is subject to different rules than other bills. Most importantly, reconciliation bills are not subject to cloture votes--the 60 vote supermajority procedure to overcome a filibuster--and thus only require a 50 vote majority to pass.

The voting record shows that reconciliation is often used as a way to pass otherwise contentious legislation that could not receive sufficient bipartisan support to reach the 60 vote supermajority necessary to clear a cloture vote. Seven of the thirteen reconciliation measures examined here passed between 1990 and 2007 were almost universally opposed by the minority party while gaining almost total unity in support from the majority using the reconciliation process.

OBAMA AND REID HELD A GUN TO THEIR HEAD AND GOT WHAT THEY WANTED

And along the way there were some FAVORS THROWN IN FOR GOOD MEASURE 


Oct 29, 2013 1:30PM
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Democrats and red-blooded flag waving Americans were coerced into going into War against the wrong Country, By being call "Non-Patriotic" with Bush's "you fer us or agin us." 

Therefor many Dems voted for the incursion, also some from public pressure..

 

Strange this all coming from a "draft dodging" President that was also AWOL from his duties as a dodger in the Tex ANG...

Many may not realize, but joining the Guard, Reserves and Peace Corp, along with Student deferment were ways to "dodge the draft" back in the day....Worst was "fleeing to Canada"...

I believe Carter pardoned them.?

Oct 29, 2013 1:21PM
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RE-TOG: Right you are.Last night I called several relatives in Ohio about my upcoming wedding.

They are mostly Republicans and they did more crying and bellyaching about Obama.I think I

should send them crying towels.They`re crying about how bad the Repubs are going to lose the

midterm elections.They just hate this peace and prosperity.

Oct 29, 2013 7:42PM
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LOVE
 Reverting back to the original question, how would you react if legislation would be passed on a partyline vote of that magnitude, 1/5 of the economy without input from the opposing side.
 If a  were done to the Democrats they would be squealing louder than the Republicans are right now and  blocking any thing and everything put in front of them.
 Obama has a tendency of saying he cannot gather bipartisan support to any legislation placed on the table.  When you force anyone to do something against their will  natural instinct  says to  REBEL
Oct 29, 2013 2:42PM
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We broke through 15,600.  We were in the 14,600 to 15,600 range for nearly 5 months. Money from even heaven now.  Never did like the idea of everyones eggs in one basket. Do folks even remember how to spell diversification?
Oct 29, 2013 12:55PM
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Barry, You just believe everything they tell you on Fox.One minute they say Obama is weak

and the next minute they say he`s a dictator.No wonder you`re so confused and mixed up.

Oct 29, 2013 1:27PM
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Barry, As usual, you have no solutions of your own.Just throw rocks at Obama and cry,bellyache

and whine.I`m going to market crying towels for Republicans when they lose lots of seats in the Congress in 2014.

Oct 29, 2013 4:14PM
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Brent - What happened to the fake identity you created earlier today, you know INDEPENDENT ?
BUSTED , FOOL
So dumb, so broke, so delusional

Oct 29, 2013 1:48PM
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What nut house did this Barry Soetoro get let out from?
Oct 29, 2013 1:44PM
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CLASSIC LADY:Where did you get such stupid ideas and jokes?Rush Limbough?
Oct 29, 2013 12:41PM
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Looks like the Nasdaq caught the ObummerCare website bug.
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