Occasionally, it pays to pay attention to market lore. September is supposedly a horrible month. They had it right and it wasn’t quite different for Apple either.
On the final trading day of the month, the S&P 500 SPX, -0.61% will have lost 7.95%. A bond crisis in the UK as well as concerns about inflation and rising borrowing prices had a negative impact.
However, there is positive news if traders follow seasonality. According to Dow Jones Market Data, October sees a 1.8% increase following a loss of at least 7% in September. October gains typically average 1%.
But is that possible without the assistance of the large animals?
Apple in the spotlight
Take Apple AAPL, -3.05% for example, which is weighted about 7% in the S&P 500. There are occasions when the market may ignore iPhone maker weakness, but these are uncommon. After Bank of America cut Apple’s rating and its stock dropped to nearly a three-month low, the market took a beating on Thursday.
Don’t worry, says Mark Newton, head of technical strategy at Fundstrat, as Apple can likely bottom next week as another bounce in rates and the dollar push the broader equities market lower. However, Newton predicts that Apple will trend higher through mid-November.
“I continue to believe that October approaching should be a time when many various asset classes experience a change in trend, with equities and Treasuries turning higher (yields fall) while the U.S. Dollar takes a reprieve from its parabolic rally. The risk/reward should be favorable for bulls to buy dips on declines into next week,” says Newton in his latest note.
He cites several justifications for why Apple is unlikely to have a negative effect on the market in the upcoming weeks.
First off, Apple has fared better than most tech equities, and after a terrible few days, it still trades at almost 9% above its $129.04 lows from June.
Next, according to the daily charts, “daily momentum is now hitting oversold levels and DeMark fatigue looks to be emerging on AAPL stock in two to three days.” Note: Before AAPL smashes June lows at higher levels, this probably should lead to a potential trend reversal, according to Newton.
Also, though Apple is 21% down from its all-time high at the start of the year, “its pattern has been anything but bearish in the last year, but sideways as its trading at roughly the same levels as it was last October”.
Finally, Newton argues that unless the June lows of $129 are breached then the recent retreat doesn’t carry much technical significance and “and should be a buying opportunity heading into next week with optimal levels to consider at $135-$138 on weakness”.
In conclusion, Newton believes that Apple’s downturn is not as severe as many believe it to be, and that the tech industry has fared much better recently than people realize. “Both variables should be significant explanations for why markets may be poised to bottom out when most people least anticipate it,” the author writes.