Why You Should Watch Market Leader Apple For The S&P 500's Future Direction

Why You Should Watch Market Leader Apple For The S&P 500's Future Direction

Apple, Inc AAPL gapped up 2.7% to start the trading day on Friday after receiving a positive reaction to its third-quarter financial results.

The most notable indicator for technical analysts is that the tech-giant began the trading day above the 200-day simple moving average (SMA). If Apple had opened the trading session below that level, the area would have acted as heavy resistance, but because the mega-cap stock opened above the area, the 200-day will now likely act as major support.

Apple has been unable to trade above the 200-day SMA since May 5 and on June 2 the 50-day SMA crossed below the 200-day, which officially threw the stock into a bear cycle. Considering that Apple is the most heavily weighted stock within the S&P 500, weighted at 6.2% of the index's total holdings, it’s surprising Apple’s share price acted as a lagging indicator.

Now, with Apple being one of the first big tech stocks to regain its 200-day SMA, while the S&P 500 still trades below the level on the daily time frame, traders and investors are feeling mixed as to where the general markets are headed.

Just because Apple lagged the market on its overall downturn doesn’t mean the stock can’t signal future general market direction. The fact that the market leader has regained the 200-day SMA is a positive sign.

Apple’s chart appears ready for a pullback, however, and traders and investors will be watching to see if the stock can maintain the 200-day SMA when the retracement takes place.

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The Apple Chart: Apple reversed course into a strong and consistent uptrend on June 16 and printed its most recent higher low on July 26 at $150.80. The most recent confirmed higher high was formed at the $156.28 mark on July 22 and although the stock has recently soared above that level, the stock hasn’t printed a reversal candlestick.

  • The reversal back to the downside is likely to come soon, however, because Apple’s relative strength index (RSI) is measuring in at 70%. When a stock’s RSI reaches or trades above that level, it becomes overbought, which can be a sell signal for technical traders.
  • The 200-day SMA is running directly through the middle of a lower gap, that exists between $157.64 and $159.50. It’s about 90% likely that Apple will fall down to fill that empty trading range in the future and if that occurs on Monday, traders will want to see the gap quickly filled and then for Apple to close the trading day back above the 200-day.
  • If Apple closes a trading day below the 200-day, the area will act as heavy resistance and could indicate a larger pullback in the general markets is on the horizon.
  • Apple has resistance above at $167.88 and $171.03 and support below at $162.14 and $157.26.

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