Apple looks vulnerable to chart strategists. That could be a warning for the whole market

Published Tue, Aug 23 20222:56 PM EDTUpdated Tue, Aug 23 20223:38 PM EDT

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

Technical analysts say Apple's stock chart could be showing signs of short-term fatigue, and that could have repercussions for the whole stock market. The $2.7 trillion market cap stock is 7.4% of the S & P 500, so when it moves it can help propel the benchmark index higher. It can also act as a drag on the downside. The largest U.S. stock is also a member of the Dow Jones Industrial Average and the Nasdaq Composite . "It outperformed the market during the spring correction, and then it outperformed the market off the June lows," BTIG chief market technician Jonathan Krinsky said. "It's basically been both a defensive and offensive vehicle, which tells me it's very overcrowded at this point. And it's very extended. Any number of technical metrics will tell you it's very extended. The risk reward is poor." Krinsky said the stock could move back to its 50-day moving average, around $152 per share. The 50-day is the average of the last 50 closes. A move below it would be viewed as a sign of negative momentum. "I think Apple is vulnerable, so by definition that makes the indices a bit vulnerable. It's such a large part of them," Krinsky said. Apple was trading on both sides the flatline Tuesday, after three days of decline. The stock closed at a near-term high of $174.55 per share Aug. 17. It traded around $168 on Tuesday, up slightly on the day. Apple has outpaced the S & P 500 in 2022 and is up 3.3% in August, compared to a barely positive performance by the index. Since June 30, Apple has gained 22.6%, compared to the S & P 500's 9.3% gain. "I think today is just a nontrending day because it follows two such weak days. The pullback is giving way to a pause," Fairlead Strategies founder Katie Stockton said, noting that there is a new momentum sell signal in Apple — as well as in the S & P 500. "The gap down yesterday affirms that shift in momentum," she said. "Overbought conditions were in place for a prolonged period for Apple. I would expect the pullback to take it to the 200-day moving average, which is where there is initial support at $160.62." Stockton said the sentiment shift is broad-based and not limited to Apple. It is apparent in the Cboe's Volatility Index (VIX), which has been moving higher. The VIX dipped slightly Tuesday. Scott Redler, partner with T3Live.com, said Apple finally showed a relative weakness signal on Friday. "Everyone for pretty much the last two weeks was talking about how Apple was too overbought and ahead of itself, but it didn't come down and neither did the S & P," he said. "Apple hit $166.50 this morning, which is a very small type of healthy corrective move," he said. That was about 5% from Apple's intraday high on Aug. 17. At the same time, the S & P dipped below and tested support Tuesday at around 4,130. The index reversed some losses and was at 4,135 in afternoon trading. "So now it will be interesting to see if we're going to take a deeper move lower," Redler added. If so, "Apple could definitely break today's low in the sessions ahead. It's definitely a barometer." He said the next level on the S & P to watch after 4,130 is the zone between 4,030 and 4,040. "All traders will be watching to see how it's reacting in the next few days for possibly whether the S & P could get to 4,030 to 4,040," Redler said. BTIG's Krinsky said one of the signs he was watching on Apple was how far above its 50-day moving average it trades. He said last week that was at about 16%, an unusually large spread. "If you look at the last seven years, the only time it got to 16% for an extended period of time was in August, September of 2020," he said. "That saw a pretty quick little shakeout from the peak," Krinsky said. He noted at the time, it was 27% above the 50-day. He said after that point in 2020, the stock fell about 20% between the end of August and late September, below its then rising 50-day moving average. That spread is now about 10% after the recent pullback. Krinsky noted that very wide spreads can mean a security is at an inflection point, and every stock reacts differently. He also noted that Apple could see some downside pressure due to a gap in its chart from late July, when Apple reported earnings. "On July 28, the stock was at $167.54. Then the next day the low was $159.50. There was no trading in the regular session between them. Price wants to go back and trade where there was no trading," he said.