As goes Apple, so goes the market?
This is a phrase you’ve probably heard before…
Apple (AAPL) is the largest US company with a market cap of $2.4 trillion. And it’s the world’s second-largest company, just behind Saudi Arabian Oil Company.
So, it would make sense that if Apple moves in a certain direction, the market should follow.
But while the market has been falling for a while now, it was only recently that Apple started to roll over.
Does this phenomenon only work one way, or is Apple going to keep pulling the market down with it?
Today, we’re going to try to answer that question…
The Bear is Here
From the all-time high back on Jan. 4 to the recent low on May 12, the S&P 500 index fell 19.92%.
But while some might say that this is not an official bear market because it didn’t reach the -20% threshold, I’m going to call this exactly what it is… a bear market!
After all, the Nasdaq 100 fell 30.26% from its peak, and the Russell 2000 dropped 30.82% from its all-time high.
And the percentage of stocks trading above their 200-day moving averages fell to its lowest point since May 2020 last week at 25.39%.
That’s a bear market if I’ve ever seen one.
Market Leader Under Pressure
Now, there are certain groups of stocks that have been leading the markets even during the recent turmoil.
Shipping and oil stocks have been faring well, as have real estate investment trusts (REITS) that are thriving in a rising rate environment.
But the big one I’ve been watching is Apple, of course.
Apple was one of the final mega-cap stocks holding up the major averages during this year’s bear market.
At the end of March, when many stocks were down 20%-50%, Apple was less than 3% off its all-time highs.
Check it out on the daily chart below…
Unfortunately for the bulls, AAPL finally broke down last month.
The stock fell below its 50-day moving average (red line), meandered lower for a couple of weeks and then fell firmly below its key 200-day moving average (white line) on May 5, dropping 5.57%.
That same day, the Nasdaq 100 Index fell 5.06%…
As you can see, this was the final straw that allowed the index to flush lower and make new lows, confirming the disastrous bear market we have been seeing for months.
And it’s the same technical picture when looking at the S&P 500 Index.
Why Apple?
So, why is Apple such a key stock for the market?
Well, not only is the highest-weighted company in each index — Apple alone accounts for roughly 7% of the S&P 500 index even though it is only one of its 505 stocks — it also accounts for a major portion of many of the most popular exchange-traded funds (ETFs).
In the Invesco QQQ Trust (QQQ), the tech ETF representing the Nasdaq 100, AAPL is 11.27% of the weight.
AAPL also represents 21.45% of the popular Technology Select Sector SPDR Fund (XLK).
Therefore, it has a hugely outsized impact on all of the major indexes.
Follow the Leader?
Apple is one of the most heavily followed stocks in the world… And for good reason.
It is a bellwether for the economy and the US consumer, unlike many of its mega-cap peers.
But unfortunately, it’s giving us a signal that the market is not well.
Sure, we’ve known this for a while now, and it’s why I’ve been recommending mostly short ideas for a few weeks now.
Now, I’m not going to go out and short AAPL here, but I am going to continue to keep an eye on it for clues about market direction.
If we see Apple’s 50-day moving average cross below the 200-day moving average, which will happen soon unless there is a major push to the upside, and see the 200-day start to curl lower, I’ll be looking for further weakness in the broad market.
In fact, we’re already seeing that take place on the charts above, so keep your bearish guard up until we start to see some signs that the selling is behind us.
Join Me This Afternoon
Until then, we are going to continue to capitalize on the short side here at Stock Surge Daily as well as the premium services I run for subscribers here at Traders Agency.
For example, in my Alpha Stocks research service, I told you about a recent win we scored on the short side in only eight days as Pegasystems Inc. (PEGA) stock plunged last week…
We didn’t catch the exact low… But we walked away from our short trade with a combined return on our position of 21.6%.
And subscribers who used the put option alternative scored even greater triple-digit gains.
I’m going to talk more about his strategy in a special live session this afternoon, which I think will be full of invaluable information for trying to make your way through a market like this.
Embrace the surge,
Ross Givens
Editor, Stock Surge Daily
