Apple (AAPL): The Trigger For A Correction?

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About 5 weeks ago, In our June 20th Stock Market Update & Asbury Investment Management Video, entitled It’s Sink Or Swim Time For The Stock Market, we said:

…SPX (the S&P 500) is currently making its 7th test of the 50-day moving average just since late January.  The US broad market index must remain above this support, which is currently located at 4182 to 4161, to keep the current Tactical uptrend intact”

The green highlights in Chart 1 below, which plots the S&P 500 daily since January, show that the index has risen by 6% since our Jun 20th update — and that its November 2020 Tactical uptrend still remains intact.

Chart 1

However, US stock market conditions are certainly not all roses.  The S&P 500 has already risen by an incredible 100% since its March 2020 lows, indicating that it is historically very overextended and thus vulnerable to a potentially large and nasty downside correction.  Moreover, market breadth has been deteriorating for some time, which means that the stock market is relying on a smaller and smaller group of stocks to drive it higher.  This is akin to a 6 cylinder car climbing a hill on only four cylinders.  It may continue climbing for a while, but the remaining cylinders are starting to overheat so when they quit, the car will roll right back down the hill.

A good example of one of the remaining “cylinders” is Apple (AAPL).  The chart below is one that we featured in our Thursday July 29th education webinar for Fidelity Investments.  It plots Apple (AAPL) daily since Q4 2020 along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies. 

Chart 2

AAPL leads all public companies with a $2.4 trillion market cap — which exceeds the GDP of most countries and also exceeds the total value of stocks on most exchanges worldwide.  AAPL also comprises about 1/4 of the total market cap in the large cap NASDAQ 100 (NDX), the latter which has outperformed the S&P 500 by 6.8% since May 10th and has been largely responsible for the US broad market index’s strength since then.

The chart shows that AAPL broke out to new all-time highs on Jly 13th, but has been struggling to remain above the previous $145.09 Jan 25th high ever since.  AAPL finished last week just slightly above it at $145.86.  If AAPL fails to remain above $145.09 it will indicate that the US broad market is losing a big chunk of its remaining leadership — and we would see this as a potential leading indicator that a broad market correction is emerging.

Our latest video below shows how we have navigated these recent market conditions for client portfolios in real-time.

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