S&P Still Flirting with Support, and AAPL's Big Influence

by Guy Cohen 11. May 2012 01:25

The markets are still flirting with the support levels I mentioned yesterday. The S&P is marginally up having started strongly and I'll make a wager that when you refresh this chart you'll see the OVI is still negative!

Typically if support is going to hold the stock will rebound strongly off it in reasonably quick time. Right now the S&P is being a flirt and forming a bear flag type pattern. A close below 135 would be bearish. Looking at the chart you can see that the peak was at the end of March and it only took the OVI to go negative a couple of days later, and stay negative since that time (apart from one measly day!).

AAPL's Influence
... Or should I say, AAPL's influenza?! Because when AAPL catches a cold, the S&P (and Nasdaq) are also likely to catch a cold. Currently AAPL is so strong that it makes up around 4% of the S&P's index weighting!

To illustrate this, take a look this comparison chart of AAPL and the S&P. AAPL is in colour and the S&P is in grey.

You can see how both prices are very tightly correlated and both are near key support levels. Without AAPL's influence we might have seen a much weaker S&P occurring much sooner. Now that AAPL has caught a bit of a cold, both the S&P and Nasdaq have done so too.

But here's the key ... The S&P's OVI is completely independent of AAPL. And look at the difference in both OVIs. AAPL's is far more bullish on a consistent basis. Even now it's turned negative, it's bouncing back and forth, while the S&P's OVI has been negative for over a month now.

What does this all mean? Well, I've said before that AAPL needs some time to rest after a superb bull run. It's going to be tough for the S&P and Nasdaq in the meantime, so I expect some sideways action at best.

All the best

Guy

Tags: Guy Cohen, OVI Index, The Market, Flags