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Friday, May 11, 2012

As goes Apple, so goes the market

I have written extensively on Apple of late, but to recap, I stated that the chart was going parabolic - the slope was increasing at an increasing rate, or in simple language it was getting steeper and steeper, and that this typically means the stock is about to roll-over.  Here is a current 1-year chart of Apple:

As you can see, the stock peaked and has, in fact, rolled-over and has begun to correct.  Moreover, it has broken down through its 50-day moving average, which is a very negative indicator.  The 100-day moving average is around $525 and the 200-day is around $450.  We need to keep an eye on these levels as well for more possible negative breaks.

As I have discussed, Apple was responsible for about 15% of the entire S&P 500 performance int he first quarter - the S&P 500 was up about 12% for 1Q12, so about 1.8% of that 12% came as a result of Apple's strong performance.  Apple has become such a huge percentage weighting in the S&P 500 (and the NASDAQ Composite and NASDAQ 100), that it has been pushing these indexes around.  As the stock price falls, the weighting also falls, all others being equal, so the negative impact on the indexes will lessen somewhat as Apple declines.  However, as other stocks decline in value, the relative weight of Apple may remain high enough to cause significant declines in the indexes, should Apple continue to fall in price.  

Just today, Credit Suisse reduced its sales expectations for Apple due to lowered expectations for iPhone sales.  I would suggest to you that the wheels are coming off of the cart.  As good as Apple's products are, no company can maintain a market cap this large.  I expect to see Apple get down to the $400 level if not lower.  At or below $400 a share, I will be a buyer, but not until then, and not unless I feel comfortable with the overall level of the market.

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