The stock market is proving once again that the biggest of all leaders can break down, yet still hang in there as the bigger theme of rotation continues onward. Apple Inc. (NASDAQ:AAPL) is in very bad shape technically, but the market is hanging very tough. This has happened before when AAPL declined into the upper three hundreds before its split. The stock fell apart, but the market did not. AAPL is a drag and isn't helping the market here, but this market has remained resilient because as one sector or key stock goes into a bear, another is coming out of it and starts to perform better.
Those transport, semis, and industrials are starting to act better, either through price or divergences. They have all been in a nasty bear market for quite some time, but now there's lots of hope, and, thus, the bears are still finding it very difficult to get this market to fall below 2040 on the S&P 500, where there lives a triple-bottom level of support. ONLY when that level goes away with some force will the bears be able to hold their heads up high. So today was a day that saw the market fall back down as it got closer to breaking out. We started out fine, with AAPL moving up quite decently early on in the trading day.
Suddenly, and out of nowhere, AAPL started a precipitous move lower, falling nearly four dollars of the day’s high. The downtrend continuing. As the S&P 500 headed down towards 2063 support, it began to find its footing, which allowed the market to close well off its lows. AAPL didn't recover much and had a very bad day, for sure, but the market didn't come close to dealing with the same type of technical damage. AAPL led down and the market followed, but nowhere nearly as bad as, once again, rotation was the key to help prevent anything too terrible.
Frustration is mounting. You can feel it. I can see it from comments being on the board. Folks are feeling lost and let down. The market not breaking out time after time is starting to get on the nerves of most traders, especially the ones who are always bullish. Long bases of seven months can really take its toll. An entire year of a market going nowhere has to eventually start playing havoc on everyone's nerves. No matter how patient you think you are, you likely have limits to wondering when something is going to go your way.
You keep getting hopeful only to have that hope taken away time after time. Think about it folks. It's been seven months. Most have some level of patience that can be extended out, but seven months is really pushing it. Thus, we're seeing tremendous unwinding in the bull-bear spread and for those who follow the AAII sentiment reading, it has turned very bearish. Two-to-one bears over bulls. I clearly prefer the bull-bear spread, but it's interesting to see how fast the bears are rocking in.
I'm not saying there isn't risk. There is still loads of risk here for this market. The monthly charts stink. All that said, price talks. Bear-market areas are showing signs of hope. Some will probably get new bears for themselves, but as long as rotation continues, there is still the chance that we can break out, even if we fall a bit further first. Try to focus on good earnings stocks if you must play. Nothing, and I mean nothing, is easy in this environment, so adjust accordingly.