Conclusion, Investment Implications, Strategy

Although the benchmark S&P 500 (SPX) is edging above its 200-day moving average today, as long as market-leading Apple (AAPL) has not exceeded its January highs the US broad market will remain vulnerable to at least a corrective decline.

As Goes AAPL, So Goes The Market

With the S&P 500 (SPX) edging above its 200-day moving average this week amid a Risk On/Positive reading in our tactical models, many of our clients are asking if this is a good place to put more “sideline money” back to work.  Before you do, there is one chart you should consider: Apple (AAPL). 

At $1.38 trillion, AAPL is the 2nd largest US company after Microsoft (MSFT).  More important, AAPL has maintained a nearly lockstep linear correlation to SPX, of between 0.82 and 0.96, throughout the past 35 years.  So, statistically, as goes AAPL so goes the US broad market.

Chart 1 below shows that, while SPX is edging above its 200-day moving average (widely-watched major trend proxy) amid positive market internals, AAPL is situated just 3.5% below its late January all-time high of $327.85 per share after failing to rise above it yesterday.

Chart 1

One of the biggest mistakes investors make is buying the highs and selling the lows — which is why we spend so much time pointing out the key index levels to pay attention to.  Right now, the risk is getting too aggressive in putting sideline money back to work while SPX edges back above its 200-day MA, only to have AAPL fail at its old highs and proceed to drag the market lower for the next several weeks.

So, when you contemplate how much sideline money to put back — and where and when — make sure you factor market-leading AAPL into your decision.