By David Moenning
Chief Investment Strategist, StateoftheMarkets.com
After defying the naysayers, a great deal of logic, as well as gravity for the past four and one-half months, the coolest company in the world has had a rough go of it over the last week. After hitting a high of $644 on April 10th, shares of Apple (AAPL) have done a pretty decent swan dive impression as the stock closed yesterday at $580.13, a cool $64 (or just about 10%) off the top - all in a matter of five trading days. But after completing a +57% run in 2012 alone, I guess a quick little dance to the downside was to be expected.
Apparently an influential analyst's fear that the brainchild of the late Steve Jobs might miss their numbers on Mac sales had a lot to do with the selling on Monday, which took AAPL down -4.15% on the session. Or maybe it was the talk of difficulty overseas or the latest lawsuit - I'm not completely sure. You see, while I will admit to owning the stock from somewhere around $395, I must also admit that I don't spend an inordinate amount of time on a daily basis poring over all things Apple. However, I do have one observation that may be worth your time this fine Tuesday morning.
There has been an awful lot of discussion over the last couple of months about the inordinate impact Apple shares have on the various indices. There has been worry that the extreme weighting the company now carries in the indices might bring the overall market to its knees if and when the world's biggest company stumbled. However, while the king of cool took it on the chin Monday for the biggest one-day decline in months, the venerable DJIA gained 72 points and both the midcap and smallcap indices also finished with green screens. Oh, and the S&P 500 wound up lower by just -0.05%.
My point is that as far as big, bad, market-killing events go, this one wasn't so bad. Well so far at least, as all anybody could talk about after the close was how much farther Apple might fall (I put my quarter on the $560 square, by the way). But, the key take away is that Apple's demise has so far at least been pretty much a non-event for the overall market. And from my perch, that seems like a good thing.
As I've been saying recently, it appears fairly obvious that if Europe doesn't kill this market (this time all eyes are on Spain - and I'm watching EWP daily), and China doesn't kill this market (FXI is my fav to watch), and even a 10% dive in Apple and/or Google (GOOG) doesn't kill this market, then we're likely experiencing a simple consolidation phase. So, after a quick 12.8% gain to start the year for the SPX and a -4.25% pullback over the last couple of weeks, it looks to me like it is ‘game on’ for our two teams.
During a consolidation phase, the two teams tend to duke it out over their respective theses. The bears have Europe (yes, again), China's slowdown, no more stimulus on the horizon, and rising inflation in their corner while our heroes in horns can point to profits at an all-time high, an economy that appears to be growing steadily, low interest rates, and decent valuations. As such, each data point that supports either team’s view tends to get the attention of the fast money crowd for that day.
So, once this period of "price discovery" (aka seeking an equilibrium point) is complete, the bulls just might be able to resume their recent rally. But until then things get bumpy. Especially if we start to see an Apple a day start to hit the tape.