• Expect the after-hours gap to be erased by Wednesday's open.

I have taken a closer look at Apple's (AAPL) quarter.

My bottom line is that were it not for the large buyback (and return of capital), the shares would have been down as much as they are up in after-hours trading, as the forward guidance was that bad.

As long as Apple is losing the battle for the high-end customer and facing other fundamental challenges (including but not exclusively margin deterioriation), I see little more than a 3% dividend yield which will appeal to long-term investors in this name.

I expect some of the $27-plus-per-share gap in after-hours trading to be erased by tomorrow's opening.

• It guides to a very weak third quarter.

Apple (AAPL) met earnings expectations but guides to a very weak third quarter.

The gross margin projection for both the recently reported period and the third quarter of 2013 likely plays into the bears' concerns on the company. l

More aggressive capital allocation (a 15% rise in the dividend and a buyback increased to $50 billion) should mitigate some of the disappointment.

Though my hunch is that the stock rallies a bit off the news (in relief!), I am comfortable being out of the name, as I mentioned earlier 

Away from Apple there were some conspicuous earnings disappointments after the close (and some sizeable share price drops) -- e.g., Edwards Lifesciences (EW), Panera Bread (PNRA), Amgen (AMGN), Cree (CREE), VMWare (VMW), etc.

Tomorrow's opener will discuss the earnings reporting period, thus far  

Thanks for reading my Diary today, and enjoy your evening.

• Here is a look at the action, prior to the Apple release.

Reflecting the plethora of earnings releases, there is a lot of action -- both up and down -- after the close.

Here is a look at the action, prior to the Apple (AAPL) release.

Most Up, April 23, 4:25 p.m.

Bloomberg

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Most Down, April 23, 4:25 p.m.

Bloomberg

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• My mavens on the Exchange see little to do on the close today.

Small sector buying in consumer staples, utilities and energy; sells in financials and information technology. Chevron (CVX) ConocoPhillips (COP) and GE (GE) have about $12.5 million each to buy. Salesforce (CRM) has $30 million to sell.

• Earnings and guidance will likely miss the lowered expectations.

While the bar is now set very low at Apple (AAPL), I feel comfortable sitting this one out. 

I have traded it fairly well over the last few months, as I have treated the stock as a "trading sardine," not an "eating sardine." 

Based on our channel checks, I would say that both reported earnings and guidance will miss the deflated expectations.

• Adding to a pair of long holdings.

I added to longs in Montise (MONI.L) and Northwest Bancshares (NWBI) today.

• Jeffries has dropped Netflix (NFLX) shares to Underperform.

• I have added considerably to my SPDR S&P 500 (SPY) short at $157.62.

• More to come. 

My one consistent theme is that there is only uncertainty to be certain of.

The hacking of the AP account is another example of why traders/investors should maintain below-average size positions and a greater-than-historic cash reserve.

More to come.

• I suspect Associate Press's password was AP123.

Twitter is a testimony to the power of 140 characters entirely unvetted.

I suspect Associate Press's password was AP123!

• Here is a Bloomberg story that just came out on my voyage.

Starting on Friday and leading up to May 4's Berkshire Hathaway (BRK.A/BRK.B) annual meeting, I plan to write a daily column on my preparation and thoughts regarding my trip to Omaha as Warren Buffett's "credentialed bear."

Here is a Bloomberg story that just came out on my voyage.

• Consumer nondurables are the world's fair.

Apropos to my opening missive, the defensive consumer nondurables remain the world's fair today.

• Here is a look.

Below is a chart on the 10-year U.S. note yield over the last 12 hours.

10-Year Yield

Source: Bloomberg

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• I am shorting more shares.

I am adding to my Fastenal (FAST) short now.

• So far.

I added to shorts in Yahoo! (YHOO), Grand Canyon Education (LOPE) and Berkshire Hathaway (BRK.B) today, and I am bidding for more Monitise (MONI.L).

• I am now long the May 159 puts.

I am buying SPDR S&P 500 ETF Trust (SPY) May 159 puts at $2.60 now.

• My favorite long stock is Monitise, and my favorite stock to short is Henry Schein.

Favorite individual equity long: Monitise (MONI.L).

Favorite individual equity short: Henry Schein (HSIC, reports May 7).

• Let's parse through the economic data released this morning.

After weakening trends in the Philly and Empire manufacturing data for April and Markit's preliminary national number (52 compared to consensus of 53.9), the Richmond Index also missed (it fell from +3 to -6 and estimates of +2).

Back to Markit's report. This is a new number that claims to correlate to the national ISM manufacturing report coming up on May 1 -- expectations are for 51.3 vs. 54.2 in prior month. Output and input prices fell, though exports rose modestly.

Here is what the chief economist at Markit said following the release:

"The biggest monthly fall in the PMI since June 2010 raises concerns that the U.S. manufacturing expansion is losing momentum rapidly as businesses and households worry about the impact of tax hikes and government spending cuts."

New-homes sales were in line for March and up slightly from February. The print was the most since April 2010, right before expiration of the home tax credit.

I wrote about the likely pause in the housing market yesterday.

The FHA said that its home price index increased +0.7% month over month, as expected.

• Shares are up on the event.

MetLife (MET) spikes on first dividend increase since 2007.

• I will go into the earnings without a position.

Housekeeping item: This morning I dumped the balance of my Apple (AAPL) long from late last week.

I will go into the earnings without a position.

• Keep a close watch on P&G, Coke, Colgate, Clorox and General Mills.

"Never have so few led so many."

-- Anonymous

Move over the University of Michigan's 1991 basketball team, there is a new "fab five" in Market Town.

The greatest college basketball class ever recruited, consisting of Chris Webber, Jalen Rose, Juwan Howard Jimmy King and Ray Jackson, is being replaced by a new fab five of stocks, consisting of Procter & Gamble (PG), Coca-Cola (KO), Colgate-Palmolive (CL), Clorox (CLX) and General Mills (GIS).

In the 1960s and 1970s, the stock market was inhabited by the "nifty fifty," a small subset of one-decision stocks that had strong balance sheets, solid franchises (typically leaders in their field), superior profit prospects and were generally credited with the bull market of that era. Some examples of the nifty fifty included Wal-Mart (WMT), Avon Products (AVP), Disney (DIS), McDonald's (MCD), Polaroid and Xerox (XRX). The stocks flourished for a while but ultimately became overvalued, reached speculative status and were weighed down by the bear market that continued until 1982.

It seems that in every market cycle there is a nifty fifty or a body of stocks that are embraced by investors. In time, the market predictably grows more and more bifurcated, with the worshipped (few) stocks standing alone at the top of relative performance.

When this happens and further extends itself into speculative excess, a correction often follows the diverging performance when the leadership group falters.

In recent months, the market has become increasingly bifurcated, perhaps as much as at any time since the Internet stock boom ended in 2000, as defensive equities (consumer nondurables, health care REITs, insurance, MLPs and utilities) are leading while cyclical, energy and technology have lagged.

Source: The Wall Street Journal

Since late February, the heterogeneity of the market has been conspicuous, with the strong sectors rising by 6% to 8% and the economically sensitive sectors dropping by a similar amount. This diverse performance, seen in the chart below, has disguised an internal market correction even though the overall stock market has maintained an uptrend.

Consumer Staples vs. Industrials

Source: Bloomberg

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At the same time, the dissimilarity of market sector performance has been seen in weakening small-caps and a flat-lining of NYSE breadth over the past six weeks. In non-U.S. markets (particularly of an emerging market kind), weakness and has been broad.

Let's return to the issue of leadership and its potential impact on the broader market.

Historically, in a correcting market, the strongest stocks react last while the underperforming sectors begin to stabilize and bottom.

Recently the fab five have grown further extended and have improved their relative strength -- there is, however, no evidence as of yet that a leadership change is apparent nor that a major market correction is in force.

It is increasingly clear that in the current market cycle the defensive consumer nondurables sector (led by the fab five) is the new nifty fifty and will likely move toward speculative excess sometime in the future.

Slowing global growth, lower commodities prices, continued deleveraging and possibly even Warren Buffett's imprimatur on the Heinz (HNZ) takeover are all possible contributing factors to the changing character of the 2013 U.S. stock market and the strength in defensive issues.

As in the early 1970s, when the big brand-name, moderately growing and dependable stocks were worth almost any price, the new fab five are approaching a similar legendary status.

It should be noted that the current cycle is unique in history (with the exception of the aforementioned 1971-1972 period), as strength in defensive stocks have typically coincided with general market declines.

We don't know how long the anointed fab five's strong relative performance will last. As I wrote earlier, much will depend on global growth trends and/or monetary policy changes.

What I am certain of is that it will be important to watch the fab five's relative share price performance in the period ahead, as these stocks are the new market tell.

Until their leadership begins to falter, the U.S. stock market is not likely to correct meaningfully -- at least based on the role of market leadership in the past.

• Bad is good.

In Europe, bourses are ripping led by financials (+4%) on hopes of an ECB rate cut at the next meeting (following weak economic data).

Bad is good.

Also, European sovereign debt yields are dropping precipitously today.

European Sovereign Debt Yields

Source: Bloomberg

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• I am shorting more shares at $156.65.

I am adding to my SPDR S&P 500 ETF Trust (SPY) short now at $156.65.

• Goodbye gold short.

Goldman Sachs (GS) closes its short gold trade.

• Here is what the analyst community is up to this morning.

Below are recent analysts' actions:

• Yum! Brands (YUM) is downgraded at Brother Bank of America/Mother Merrill.
• Chubb (CB) is upgraded at William Blair.
• Netflix's (NFLX) price target is raised to $230 from $180 at Cantor Fitzgerald.
• SLM Corporation (SLM) is downgraded at Evercore.
• Toll Brothers (TOL) is upgraded at Barclays.
• Morgan Stanley (MS) is raised at SunTrust.

• Here it is.

Below is today's economic calendar.

• Let's take a peek at the markets.

Overnight:

• S&P futures +2 (futures have rallied from being -4 in the middle of the night);
• Euro markets +;
• euro -;
• crude -0.70;
• gold -; and
• 10-year yields 1.67% (new recent low in yield after weak German and China data).

There was more evidence of slowing global growth overnight:

• In Europe, the April flash composite of manufacturing and services was weak at 46.5. Manufacturing dropped while services increased. More importantly, the forward-looking components deteriorated. Germany's April flash composite dropped from 50.6 to 48.8. The data is consistent with EU Real GDP of -0.5%.
• In China, the flash April manufactruing index was also weak.

With European equities higher and U.S. futures now reversing to the upside (and with bond markets around the world moving back to recent highs), the disconnect between the stock markets and economic data (and disappointing earnings) continues to widen, suggesting to this observer that, at the very least, markets should consolidate.