Hey trader,
AppLovin beat earnings by 12%. The stock plunged almost 20%.
Cisco beat by 27%. The stock collapsed.
If you are holding tech positions through earnings season and relying on strong numbers to protect you, these results should terrify you. Beating estimates no longer matters when momentum has already turned against you.
I warned my mastermind members the day before AppLovin reported. I told them if they owned this stock without a hedge, I would fire them.
The expected move was $34. It dropped $88.
Today I am going to show you exactly why strong earnings are failing to save tech stocks.
The Bait and Switch
I call this one bait and switch because that is exactly what happened in after-hours trading.
AppLovin reported $3.24 against a $2.89 estimate. Somebody saw that number and walked into the after-hours session thinking they were smarter than the market.
They bought it at $440 on the bounce. They woke up down $70 on a position they held for less than 12 hours.
I have a rule. I do not trade after hours.
The liquidity is terrible and they can flip the entire move the next morning. That is exactly what happened here.
The real story was already written on the chart. AppLovin topped in December, posted a lower high on January 29th at $565, then broke the November low.
Gianni Di Poce said it on the broadcast today and I agree with him completely. Perception matters more than reality.
AppLovin's revenue was growing, estimates were beaten, and the balance sheet was clean. None of it mattered because the trend had already flipped.
Gianni called a price target of $300. He said it could reach $200 before the selling exhausts itself.
This stock traded near $750 just weeks ago.
Earnings do not override broken momentum. They accelerate it.
The Dirtiest Word in Tech
AppLovin was not the only casualty today. Cisco gave us the second confirmation that tech has a structural problem.
Cisco earned $1.04 against an $0.82 estimate for another massive beat.
Then they said two words that ended the conversation: margin compression. I covered tech stocks on Wall Street and that is the dirtiest word in all of technology.
Cisco admitted they cannot maintain margins even on their AI products. Every trader headed for the exit.
I told a field trip member last week that IBM is the short of a lifetime. Now you can see why.
IBM trades at 23 times earnings when it historically traded at 12 to 13 times. The dividend yield sitting at 2.5% instead of its historical 5.5% tells you the bubble has not deflated yet.
The damage is spreading across tech in a specific sequence that matters:
- Software broke first with Oracle, Microsoft, and Salesforce leading lower
- Hardware is now joining the breakdown with Cisco and IBM rolling over
- Semiconductors are the last domino, and Gianni noted that NVIDIA is forming another lower high today
Once semiconductors break, the rally is officially over. Gianni and I agree on that completely.
What This Means for Your Positions
I used AppLovin as a warning for my mastermind members. Any stock that has hit 100 on the RSI will eventually go through this same cycle.
Duolingo had consistently growing revenue, consistently beating estimates, and a strong balance sheet. The stock fell from $500 to $107 because perception shifted.
I told Gianni on the broadcast today that if you did not sell a parabolic stock at those levels, I would sue you. The law of numbers guarantees that when they unwind, they crash.
The Genesis COG System flagged AppLovin's trend breakdown on January 29th, the same day Gianni turned bearish on the broader market. The system identified the momentum shift weeks before earnings confirmed it.
Strong earnings will not save a broken trend. The traders who bought AppLovin at $440 last night learned that lesson the hard way.
Professor Jeffrey Bierman
Creator of the Genesis COG System