Why Apple's stock performance could decide when and where the market hits bottom

Published Mon, May 9 202212:54 PM EDTUpdated Mon, May 9 20221:18 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

It may be market favorite Apple that signals how and when the selling in the broader stock market could find a bottom, according to analysts who watch charts. As the largest stock, Apple has an outsized influence on the broader market. It is in the Dow, the Nasdaq and S & P 500. Apple, as a tech and consumer bellwether, has the most influence and has been seen as a safe haven by investors shaken by the sharp declines in other tech. Specifically, strategists have been watching the relation of the tech goliath to the S & P 500, as the index hits new lows Monday. Apple has been outperforming though trading near support levels. It has been holding above key chart levels, while much of the market is breaking down. Scott Redler, partner with T3Live.com, said in order for a broader market capitulation to occur, Apple may have to break below the $150 to $155 range. So far, it was weaker Monday but holding that level, trading just above $152 per share. "In order for the bears to really growl and create the capitulation type of feeling that some technicians think we need to get a sustainable bottom, they have to get to the strongest stocks," said Redler. If that's the case, he said the S & P could move down below 4,000, toward his next target of 3,850. Year-to-date, Apple is down about 14% as compared with a more than 24.8% decline in the Nasdaq 100 and 15.8% decline in the S & P 500. Apple's market cap is about $2.48 trillion. Microsoft is the second largest stock, with a market cap of $1.99 trillion, and it's down 19.8% year-to-date. During Friday's sell-off, Apple actually ended the day higher by about a half-percent. "We know global equity investors are treating AAPL as the safest port in the current storm," writes Nick Colas, co-founder DataTrek Research. "We see it in the return data. We see it in Warren Buffett's recent endorsement." He said at nearly 7% of the S & P 500, Apple's weight is more than the entire consumer staples sector, which is about 6.7%. The energy sector is just 4%, he noted. "Will equity investors ever give up on Apple's stock in the same way they gave up on 'America' in 2009? There is no sign that's happened yet, but it is an old piece of market wisdom that markets bottom when the best companies underperform," Colas noted. Colas said when the S & P 500 cratered to its March 2009 low of 667, investors had thrown in the towel and gave up on not just the market, but the government and everything else. "If AAPL does eventually get caught up in a massive US/global equity downdraft, that will be one sign we are at truly investable lows. Giving up on Apple, with its global market share, long term track record of profitability, and fortress balance sheet, is something like the 'give up on America' trade from 2009," he said. "We don't know if we'll see that any time soon, but it is certainly worth keeping AAPL front and center on your screens over the next few weeks." Katie Stockton, founder of Fairlead Strategies, said there's reason to be concerned about Apple's price action. "Apple obviously has the biggest footprint, and I suspect now that it officially has broken its 200-day moving average after having outperformed, I do think there's some risks to Apple," said Stockton. "I do think there's risks not only for downside follow through but for underperformance." Stockton said her models show a new warning for Apple. "There's a brand-new sell signal on a daily ratio. The last signal based on the same model was a buy signal in November," she said. In addition, she said Apple initially broke its 200-day moving average in late April but was tethered to it before breaking it again last week. The 200-day is simply the average of the last 200 closing prices and is a momentum signal, turning negative when the level is broken. "At a minimum, it will be a couple of weeks of underperformance. My guess is $150 won't hold," she said. "If you see the breakdown below $149, $150, it starts to look like a bearish reversal with next support at $139." That would be a 9% decline in Apple, and it could mean a decline in the S & P could lose about 8%, heading toward her target of 3,815, she said. Colas noted that Microsoft is also systemically important, at 5.9% of the S & P 500, but it does not have the same safe-haven trading status. Redler is also watching Microsoft and said it broke its support level of $270 to $272 Monday. Microsoft was below $266 Monday. Stockton notes that Apple is also about 13% of the Nasdaq 100. Microsoft is 10.5% of the Nasdaq 100. "They're so important and especially when you look at the sector dispersion in the S & P 500. A lot of it is limited to these names — Apple, Microsoft, Amazon, Tesla and Google [Alphabet ]," Stockton said. Redler said if buyers step in and drive Apple and Microsoft back above those support ranges, the market may not capitulate for a while. "Then we're in the same type of trade we've been in ... Indexes stay in and stocks under the surface get battered and bruised," he said.

Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New York.

Lucas Jackson | Reuters

It may be market favorite Apple that signals how and when the selling in the broader stock market could find a bottom, according to analysts who watch charts.