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Stocks Set To Fall On Apple; How To Play Facebook, Tesla Earnings

X Futures for the Dow Jones industrial average, S&P 500 index and Nasdaq 100 retreated early Wednesday after Apple (AAPL) reported weaker-than-expected revenue and iPhone sales late Tuesday. Meanwhile, Inphi (IPHI) and Oclaro (OCLR) triggered broad selling in optical gear stocks. And there's no time to catch your breath: The Federal Reserve wraps a two-day policy meeting Wednesday afternoon while Facebook (FB) and Tesla (TSLA) are part of a new wave of earnings Wednesday.

In Tuesday's session, the Dow Jones industrial average rose 0.2% as the Nasdaq composite and S&P 500 edged up 0.1%. The small-cap Russell 2000 sank 0.6%.

Nasdaq 100 futures slid 0.3% early Wednesday morning vs. fair value, while the S&P 500 index and Dow industrials futures dipped 0.2%. In Asia, Australia's S&P/ASX 200 closed down 1% and the Shanghai composite 0.25%. Markets in Japan, South Korea and Hong Kong were closed. In European trade intraday, the major market averages fell 0.2%-0.4%.

Apple

Apple topped earnings estimates in its latest-quarter report, but came up short on sales and iPhone sales, which China notably weak. But the tech titan hiked its buyback program by another $50 billion, and raised its quarterly dividend to 63 cents from 57 cents. Apple has become a cash machine for shareholders, though investors are betting that the iPhone 8 will revive its growth-stock status later this year.

Apple, the biggest component of the Dow industrials, S&P 500 and Nasdaq composite, fell 2.1% before the opening bell on the stock market today as shareholders digested the mixed news and extra cash. On Tuesday, Apple had climbed 0.6% to 147.51, hitting a record 148.09 intraday.

Watch the Apple chipmakers. Cirrus Logic (CRUS), Qorvo (QRVO) and Broadcom (AVGO) fell late Tuesday. Qorvo reports earnings Wednesday.

Bad Optics

Meanwhile, Oclaro and Inphi both warned on China demand, which has been a key part of the optical gear "super cycle." Oclaro and Inphi tumbled late Tuesday. Lumentum (LITE), Finisar (FNSR) and Applied Optoelectronics (AAOI) were among other fiber stocks losing ground after hours.

Meanwhile, Twilio (TWLO), Akamai (AKAM) and Match Group (MTCH) were among the big after-hours losers on earnings. But Papa John's (PZZA), Weight Watchers (WTW) and First Solar (FSLR) were strong winners.


IBD'S TAKE: Stocks can surge or crash on earnings reports. To minimize risk while still reaping the rewards, consider this earnings options strategy.


Investors should be careful of holding or buying stocks heading into earnings and may want to use options as a way to shield themselves from a sudden plunge. That's something to keep in mind as Facebook and Tesla reports loom Wednesday.

Facebook

Facebook earnings are expected to soar 45.5% to $1.12 a share while revenue climbs nearly 46% to $7.84 billion. Both would represent a third straight quarter of decelerating but still-huge growth.

Facebook rose 0.2% to 152.78 on Tuesday, hitting a new record of 153.44 intraday. Shares of the social media giant are 19% above its most-recent breakout, which means investors should consider taking at least partial profits.

After its Q4 2016 report, Facebook initially rose the next day, but reversed lower for 1.8% loss. Facebook gradually advanced for the next two months, then accelerated gains over the past few weeks.

Tesla

Analysts see Tesla losing 82 cents a share, narrowing from a $1.45 loss a year earlier. Revenue should spike 128% to $2.61 billion.

Investors will be paying close attention to any comments from CEO Elon Musk and other Tesla executives regarding the Model 3 sedan. The Model 3 is supposed to begin production by July with mass output by year-end, but Tesla has a history of missing deadlines.

Tesla is currently in buy range, clearing a 313.83 three-weeks-tight pattern on Monday. Tesla dipped 1.2% to 318.89 on Tuesday after hitting a record 327.66 intraday.

After its Q4 report, Tesla tumbled 6.4% the next day and 10% over three sessions, but that marked a recent low.

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