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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.

Conclusion

Apple 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.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

James Kostohryz has accumulated over twenty years of experience investing and trading virtually every asset class across the globe.

Kostohryz started his investment career as an analyst at one of the US's largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, Kostohryz became Chief Global Strategist and Head of International investments for a major investment bank. Kostohryz currently manages his own investment firm, specializing in proprietary trading and institutional portfolio management advisory.

Born in Mexico, Kostohryz grew up between south Texas and Colombia, has lived and worked in nine different countries, and has traveled extensively in more than 50 others. Kostohryz actively pursues various intellectual interests and is currently writing a book on the impact of culture on economic development. He is a former NCAA and world-class decathlete and has stayed active in a variety of sports.

Kostohryz graduated with honors from both Stanford University and Harvard Law School.

View Kostohryz's LinkedIn profile and connect with him here; follow him on Twitter here and Google+ here. When connecting, be sure to identify yourself as a reader from TheStreet.

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