Apple (AAPL) and other big-cap techs stumbled on Tuesday following the long holiday weekend as crude oil and bond prices surged. The market posted a new distribution day as the major indexes fell and volume climbed from Friday's low levels, according to preliminary data.
X Apple, which has an unusually large weighting on the Nasdaq, S&P 500 and Dow Jones industrials, dropped 1.2% to 162.08 and volume grew slightly above average. Yet the stock is just 1% off its all-time high of 164.94. It holds a modest 3.4% gain following the Aug. 2 breakout past a new flat base with a 156.75 buy point.
Investors certainly showed a defensive streak following reports that North Korea successfully tested what some believe to be a powerful hydrogen bomb during the three-day Labor Day weekend. North Korean is reportedly planning another missile test following one last week that passed over Hokkaido in northern Japan.
West Texas intermediate crude oil futures settled at $48.66 a barrel, up 2.9%. Crude has rebounded more than 5% in the aftermath of a devastating flood in Houston and surrounding areas, home to many U.S. energy exploration companies and oil refining operations. Meanwhile, a severe slide in the yield of the benchmark U.S. Treasury 10-year bond to 2.08% hurt money-center banks.
It's generally believed that flat or falling bond yields hurt the trading and fixed-income revenue of major Wall Street firms such as JPMorgan Chase (JPM) (down 2.5%, back below its 50-day moving average) and Goldman Sachs (GS) (off 3.6%, falling further below its 200-day moving average).
Both JPMorgan and Goldman are members of the 30-stock Dow Jones industrial average, which led the market's decline with a 1.1% drop. The S&P 500 sank less than 0.8% as strength in oil exploration, gold mining, variety and discount retail, and medical systems stocks helped buffer the slide. The SPDR Gold Shares (GLD) ETF rallied 1.1% in fast turnover to 127.46.
The bullion-tracking ETF is now up 16.3% year to date, vs. a 9.7% lift for the S&P 500.
The Nasdaq composite was down as much as 1.6% before shaving some of those losses to end off by 0.9%. On the positive side, the tech-rich index traded on the north side of its 50-day moving average throughout the session.
Despite the broad sell-off, investors should not ignore this bullish development in recent weeks: The Nasdaq's advance-decline line, which graphs the number of stocks advancing in price vs. those in decline, has moved sharply up since Aug. 22. In general, a healthy stock market uptrend shows a rising A-D line, not a falling one.
However, on Tuesday declining stocks certainly outnumbered winners on the Nasdaq by a more than 2-1 ratio.
The Russell 2000 fell 1%.
Building products firms continue to thrive. On the NYSE, Home Depot (HD) showed some oomph, gapping up 1.4% to 152.93. The Dow Jones industrials component is now back above its 50-day line and volume jumped almost 50% above normal levels.
Back to Apple: The stock has shown several up days in heavy volume since its Aug. 2 breakout and only two down sessions in heavy turnover (Aug. 10 and Tuesday). But in the first case, Apple didn't fall further and rebounded strongly enough to hit a new high just three sessions later.
Two more reasons why Apple is showing bullish action since its latest breakout? One, the stock's relative strength line continues to rise nicely and reach new high ground. And two, the Accumulation/Distribution Rating of B on a scale of A to E indicates net institutional buying over the past 13 weeks.
As reported in IBD's Click tech blog, a recent survey on iPhone users conducted by investment bank Piper Jaffray found a smaller ratio of current iPhone users who expressed interest in upgrading to the upcoming new iPhone vs. a year ago before the latest iPhone 7 hit the shelves.
However, Wall Street is still modeling a continued rebound in Apple's companywide fundamentals. Earnings in the September-ending fiscal fourth quarter are seen rising 13% to $1.88 a share, which would mark a third quarter in a row of low double-digit growth. Revenue is expected to climb 9% to $51.09 billion, which would extend an accelerating trend in the top line to four straight quarters.
Sales in the year-ago September quarter dropped 9%, but then picked up 3%, 5% and 7% in the next three periods.
The IBD Stock Checkup for Apple still shows bullish rankings, including a 95 Composite Rating on a scale of 1 to 99. At the start of the year, before Apple's initial breakout from a bottoming base pattern, the Composite was a lowly 51, but the stock was in turnaround mode. The RS Rating was also weak at 59. Yet Apple's ratings have all improved since its Jan. 6-9 breakout from a new first-stage cup with handle at 118.12.
The RS Rating is now a fine 90, which means Apple is now outperforming 90% of all public companies over the past 12 months. The RS Rating is weighted toward price action over the past three months.
Apple has now gained nearly 40% from that proper entry point.
IBD's TAKE: When Apple broke out of its second base this year on Aug. 2, IBD immediately gave three reasons why the stock has the potential to rally another 20% in price. Read this Stock Market Today column for more details.
A cup-with-handle base offers investors one of the most timely signals to buy a great stock just before it potentially launches a run of new highs and big stock gains.
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