Apple (AAPL, $162.93, down $2.22) reports earnings after the closing bell. Wall Street is expecting $1.08 a share. Mac sales are strong and this will likely be the key to where Apple trades on Tuesday. iPods will be steady and the new iPhone won’t add be adding anything to the bottom line in the quarterly numbers so what Apple says about the Mac could determine the direction of the stock.

Bank of America
(BAC, $29.70, up $2.21) is helping keep the Financial sector rally alive for another day. The company reported earnings of $0.72 a share which blew the doors off Wall Street’s estimates of $0.53 a share.

Merck (MRK, $36.00, down $1.68) is expecting to report earnings of $0.83 a share after the bell today. There’s chatter at the water cooler that Merck could surprise Wall Street with a number of $0.86 a share. However, there’s a camp that believes Merck could come in at $0.79 a share. Either way, Merck is trading lower after delaying its numbers until after the bell. The company was going to report earning before the bell but delayed results so European researchers can present some data from a study of the company’s cholesterol drug Vytorin. The news is due out at 1PM EST.

Option traders were scooping up the August 37.50 calls (MRKHU, $1.00, down $0.50) and the August 40 calls (MRKHH, $0.35, down $0.15) on Friday as the July contracts were expiring but they are trading lower today. The August 35 puts (MRKTG, $0.85, up $0.35) are the most active in the August put chain.

Merck has been known to disappoint in the past and just last week the company settled a $4.85 billion agreement that will end 50,000 lawsuits from the Vioxx fiasco. Those who are bullish are taking on added risk with other storm clouds hanging over Merck but stranger things have happened. Too rich for my blood.

Rick Rouse
Rick@OptionsMentoring.com