“Did you get shaken out of Apple?” That’s likely to be the popular question amongst Wall Street circles following one of the biggest swoons AAPL has experienced in recent memory. Save for the flash crash (and the 2008 financial crisis of course), you’d have to go back to the near bankruptcy days of the 90′s to find a time so much doubt was surrounding AAPL. Yet AAPL proved its dominance once again, smashing earnings estimates out of the stratosphere Tuesday after hours. We expect AAPL to provide a much needed boost to a market struggling for direction.
We’re not naive enough to believe that just one stock can declare a pullback over, but it certainly ads to the list of positives when arguing that 1,357 will hold on the S&P500. In addition, 10 year Spanish yields have quietly fallen near their lowest levels in 2 weeks, another trend that the bulls need to continue. Moreover, copper and oil continue to hold key support levels. There is one potential headwind to all of this though.
Sentiment, lately a major contrarian bullish indictor as it has shifted to extreme levels, is at risk of working in the bears favor. We’re nervous that this blowout quarter from AAPL, could alleviate some of the recent bearish enthusiasm and re-energize a new round of bullishness. Such a change in sentiment in the face of a technical back drop that hasn’t yet broken out to the upside could turn into a contrarian bearish indicator. Luckily we won’t have to wait long to gauge this perception as sentiment numbers are due out Thursday morning.
The key technical level to watch will be the S&P500′s 50 day simple moving average, currently around 1,380. While we don’t much care for the use of “technical indicators” (we’d rather only be concerned with volume & price action), we can’t deny that many well respected technicians follow this moving average closely. A failure to reclaim it could be used as an invitation to get short while a breakout above it could trigger further upside momentum. Before that level can even be considered though, SPX must sustain a move above Tuesday’s high of 1,375. Above that, the 1,392 high of the last couple of weeks is key resistance.
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