Bear Tracks: Key Reversal Day and Problems With AAPL
October 6, 2012 @ 6:02 PM ESTGrowling.jpg)
PRO Trader (and very bearish) Manager Curtis Bergquist
The following premium content was originally published on the PRO Trader Service on Friday, 5-Oct at 3:54 pm
Well that was interesting.
Other than the DJIA the major indices posted what many would term a "Key Reversal Day". While definitions vary as to definition details and thus some may disagree, the action today could hardly be labeled as positive.
After surging higher in the opening minutes and then climbing moderately further during the first hour the major indices all trended lower for the remainder of the today's regular-hours session. A rebound during the final 15-20 minutes of trading did improve the picture somewhat and did allow the DJIA to post a closing bell gain rather than a loss. However, the failure to hold the early gains following the good economic news from this morning warns us to remain cautious.
S&P 500 - Intraday
Another worry comes from the action of "AAPL". Over the past 2 months the stock seems to be tracing out what may be a significant top. This may amount to nothing and the overall long-term trend may remain "Up". But nothing lasts forever and while Apple Inc. has been a major "winner" for 2012 and indeed for the past several years, at its current price the stock is less than 9 points above the intra-day high it reached back on April 10th of this year. The reason to pay attention to this possible change of trend is that Apple's capitalization is now so large it has the highest weighting in the S&P500 and the NASDAQ.
With Steve Jobs gone, if "the magic" left with him (and recent missteps do call this possibility to our attention) and with increased competition from hungry rivals, should AAPL roll over into a major down-trend it would weigh heavily on the indexes of which it is the #1 component. I am not predicting this will occur, but it could and we must be aware of the major drag which a declining AAPL would be.
Apple - Last 12 Month
Bottom-line: the market seemed to have been provided a strong catalyst from the monthly Employment Situation Report and one had every reason to expect a major rally was in the cards. Instead, after climbing for about an hour the major indices ran into resistance and spent the rest of the day declining (final 20 minutes not withstanding). The DJIA and S&P500 failed in the area of their previous tops from September. More troubling, the other major indices (S&P Mid-Cap, S&P Small-Cap, NASDAQ Composite, NASDAQ100, and Russell2000) have diverged negatively and today reversed while still well short of their previous peaks.
Have a good one...
Curtis Bergquist
Manager – PRO Trader Service
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Curtis, draw a regression channel from just before the recent reversal lows on the S&P 500. You'll see that the market is EXTREMELY extended. It's probably just pulling back to the mean. Doesn't necesarily have to keep going up, but a pullback from an extreme is NOT a key reversal day! Take off your bear hat and put on your objective techie hat! I enjoy your commentaries, but you are expecting the market to go a certain way, instead of simply following it!