Some stocks have been partying like it is 1999. The frenzy over iPhone 5 has turned into a mania. The rest of the market has been “melting up” (in the words of a fellow Trading Deck contributor) on hopes that central banks will do more.
There is an old saying, “Forewarned is forearmed.” The technical patterns traced Tuesday show that this stock market is heavily dependent on the performance of Apple AAPL stock.
The chart below compares Apple with Nasdaq 100 futures on a one-minute time frame.
In the morning, Apple was going up, and the market followed. Then Apple started tanking, the market also tanked. In the afternoon, Apple moved up and so did the market.
For the entire day, Apple was leading and the market was following. There is not much precedence of the overall market being so heavily dependent on one stock, however, there have been plenty of precedents when the overall market became highly dependent on a handful of stocks. In most cases, it ended badly.
Not to worry. So far it has been only one day. The pattern on the chart will have to repeat again and again for it to become a big concern. However, it pays to be forewarned.
The next chart is a daily chart of Apple.
In practice, exact textbook formations do not always form. If Apple had gone decisively lower than the day before, it would have been an “outside day.” Outside days after a run up are negative…Read more at MarketWatch
