Apple Could Kick Stock Market in the Core
Furthermore, the energy sector that has a huge weighting in the S&P 500 (about 11%), and ETFs such as Energy Select SPDR (XLE), are likely to have their EPS estimates seriously downgraded, due to declining oil and gas prices. Watch the $84 level on WTI crude oil. I would expect a break of that level to trigger a 15% correction in energy sector stock prices.
Dramatically declining PC sales have caused major stock-price declines for companies that are linked to the sector, such as Intel (INTC) and Microsoft (MSFT).
Everywhere you look, EPS estimates seem to be under assault. Heading into first-quarter 2013 earnings season, negative pre-announcements were at their highest levels since those statistics have been kept. The S&P 500 has already experienced two straight quarters of year-over-year EPS contraction. A third-consecutive year-over-year decline would likely cause concern in some quarters that earnings have peaked and that this will signal a top in stock prices for this particular cycle.
ConclusionApple is not the only stock experiencing technically important declines. A variety of leading sectors are either testing or breaking through their 50-day moving averages. For example, the Dow Jones Transportation Average just broke through its 50-Day MA and all of the major energy and other economically sensitive and cyclical indices, such as Morgan Stanley Cyclical Index, have crashed through their 50-day moving averages.
All of this suggests a garden-variety stock market pull-back developing that should ultimately take stocks down to the 1475 to 1500 level on the S&P 500. A break of the 1538-1540 level in the next few days would tend to confirm the likelihood of this scenario.
Should investors worry? It depends on their time-frame. In the short term, there is reason for concern. Looking a bit further out, we are still in a cyclical bull market and most intermediate-term macro-fundamental and technical indicators remain quite strong.Either way, this is not a time to be complacent. There are a slew of potential trouble spots around the world from Europe, to the Korean Peninsula to the Middle East, and a major exogenous shock could transform the minor pullback I am currently forecasting into a more serious correction. At the time of publication the author held no positions in any of the stocks mentioned. Follow @jameskostohryz This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV