Apple - The Most Important Stock in the Universe?
As Apple goes, the goes the market. For better or for worse. That's a bold statement, but here's just how integral Apple is to recent gains across many U.S. indexes.
How Huge is Apple?
Based on market capitalization, Apple is the most valuable company in the world. With its recent surge in shares, Apple became the first company to be valued north of half a trillion dollars since ExxonMobil in July 2007.
As a comparison, ExxonMobil is valued around $390 billion. Microsoft's market cap is around $250 billion, Google's around $200 billion, IBM around $220 billion and Wal-Mart around $210 billion. Since January 2007, AAPL has surged nearly 500%. Many analysts feel that Apple with be the first company to break the $1 trillion mark (I'm not one of them).
In the fourth quarter of 2011, Apple reported a profit of $13 billion. The amount that S&P 500 earnings beat the average analyst estimates drops by about two thirds when Apple profits are excluded
Apple = Gains
That's all impressive, but it doesn't illustrate Apple's true gravitational pull on the broad stock market. The following performance numbers drive home the point.
AAPL: Year-to-date up as much as 32.20%
Technology Select Sector SPDR (NYSEArca: XLK - News): Year-to-date as much as 15.68%
(XLK exposure to AAPL = 17.38%)
Nasdaq-100 (Nasdaq: ^IXIC - News): Year-to-date up as much as 15.65%
(Nasdaq-100 exposure to AAPL = 16.74%. AAPL biggest component of the index)
S&P 500 (SNP: ^GSPC - News): Year-to-date up as much as 9.18%
(S&P 500 exposure to AAPL = 3.87%. AAPL biggest component of the index)
Dow Jones Industrial Average (DJI: ^DJI - News): Year-do-date up as much as 6.63%
(DJIA exposure to AAPL = 0%)
When it comes to index investing, APPL is obviously an important ingredient to success.
What's Next for Apple?
The chart below plots AAPL against the percentR and RSI. A drop below 80 for percentR triggers a bullish low-risk entry. As the yellow arrows show, every low-risk entry in 2012 proved an excellent buying opportunity.
Tuesday's high however shows a divergence between price and RSI (prices reached a new high, RSI didn't). This is a small red flag, although it could be wiped away quickly. For right now the best indication that AAPL's run is over would be a failed percentR low-risk entry.
Apple announced that it will unveil the iPad 3 next week. Shares rose 1.84% on the news. When Apple introduced the iPad 2 last year, the stock rose 2%, peaked the next day and entered a six-month correction.
APPL and the S&P
Although we note that AAPL has reached this week's upper pivot resistance, there's no specific up side target for the stock. What about the S&P?
The S&P has reached the progressive up side targets outlined by the ETF Profit Strategy Newsletter. The S&P's run started in October. On October 2, 2011 ETF Profit Strategy update: 'Even though October has hosted some ugly bear markets, it has also killed its fair share of bear markets. I don't think October will kill this bear market, but it should spur a powerful counter trend rally. From a technical point of view this counter trend rally should end somewhere around 1,275 - 1,300 (in Q1 or Q2 2012).'
The January 29, 2012 ETF Profit Strategy update said that: 'Prices below the first trend line (1,328) keep the pressure on the down side while prices above the first trend line allow for the second trend line (1,365) to be tested.'
As if yesterday the S&P too reached now recovery highs on weakening momentum (RSI) and breadth (McClellan Oscillator). That's a small red flag, but in this liquidity-driven market it takes a break below support to trigger a sell signal.
How to Trade
I expect the coming days and weeks to be challenging and potentially frustrating.
The easiest and most effective way to navigate this kind of market is via tried and true support/resistance levels.
Why not allow the market to outline its intended trading ranges via support/resistance levels? A break below support will open up a new trading range to the down side while a break above resistance opens up a trading range to the up side (similar to the 1,328 level mentioned in January).
The bonus of this approach is two-fold: 1) Investors can profit to the up or down side (my short-term bias is to the down side) and 2) Investors will not lose out on the next big move (whether it's up or down).
The ETF Profit Strategy Newsletter outlines important support/resistance levels needed to follow this strategy and provides a no-nonsense short, mid and long-term outlook for stocks.
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