MorningWord 8/5/15: Escalator Up, Elevator Down $AAPL $DIS

by Dan August 5, 2015 9:18 am • Commentary

Apple’s (AAPL) recent weakness, down almost 15% from its July 20th pre-earnings high, caught some off guard.  Financial pundits seem dumbfounded that the largest market cap stock in the world could actually decline in a stable market. But remember that despite being the largest component in every large cap U.S. index, the stock has in the past separated itself from broad market performance on many occasions.  From AAPL’s September 20th 2012 (then all time high), to its April 20th 2013 low, a 45% peak to trough decline, the S&P 500 (SPX) rallied about 7% without its largest component:

AAPL vs SPX Sept 20th 2012 to April 20th 2013 from Bloomberg
AAPL vs SPX Sept 20th 2012 to April 20th 2013 from Bloomberg

In hindsight, AAPL’s decline was a healthy occurrence, as it helped the rally broaden out. Investors shifted cash out of a sentiment bubble, into some laggards, with the assumption that it helped market breadth.

Could the same thing being going on now after a period where the SPX has been churning in a fairly tight 5% range for most of this year?  It most certainly could, especially when you consider the fact that despite AAPL’s declines from its highs, it is still up about 3% on the year. So if AAPL were to continue to decline, it could pass the baton to other mega-stocks whose job it would be to then maintain the SPX’s 2% ytd gains.

Which is why’s Disney’s (DIS) 8% decline this morning from an all time high after only slightly disappointing earnings should be a concern for those who think the SPX is building steam for a breakout to new highs.  I suspect DIS overshoots a bit on the downside as it has been a one way street for years now.  Here is another stock, whose weakness has caught most off-sides, but I have to include a 20 year chart that I had in my preview from yesterday (read here), which I concluded:

MY VIEW:  I wouldn’t buy this stock here with your money into the print.  In hindsight, $110 was a great buy during that consolidation, but I worry that the stock is priced for perfection at a time where sentiment is white hot. You could have said the same thing prior to earnings in early May, but at this point, with market breadth very weak, and some leadership like AAPL in a correction I think it makes sense to be cautious committing new capital to cult stocks like DIS at all time highs.  The risk reward for longs gets worse every tick higher.


Yeah yeah, Blind Squirrel stuff, but the main point is simple, if today’s reaction to a modest miss is a massive surprise to you, you are still looking at things through bull market goggles that may be getting a little muddy on the last turnof the track.

AAPL and DIS’s price action could signal a problem for a stalled rally in the SPX. That is IF other mega-stocks / sectors do not pick up the baton, plain and simple. Escalator Up, Elevator Down price action with the markets most beloved stocks is far from bullish.