By Jamie Chisholm
Sometimes it pays not to dismiss market lore. They said September was usually bad. They were right.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.78% will enter the last trading day of the month having shed 7.95%. Worries over inflation and higher borrowing costs – not to mention a bond crisis in the U.K. – took their toll.
But if traders adhere to seasonality there is good news. October enjoys an average gain of 1%, and according to Dow Jones Market Data, after a September loss of 7% or more the coming month sees a 1.8% advance.
Is that feasible without help from the big beasts, though?
Consider Apple /zigman2/quotes/202934861/composite AAPL -2.84% , which commands a roughly 7% weighting in the S%P 500. There are days when the market can shrug off weakness in the iPhone maker, but they are rare. Thursday’s market battering came after Bank of America downgraded Apple , and its stock slid to a near 3-month low.
Don’t worry, says Mark Newton, head of technical strategy at Fundstrat, Apple can likely bottom next week – as another bounce in yields and the dollar pushes the broader equity market down – but then it will trend higher into 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 gives a number of reasons why Apple is unlikely to negatively impact the market in coming weeks.
First, Apple has held up better than most tech stocks and even after a bad several days it still trades roughly 9% above its June lows of $129.04.
Next, “daily momentum is now reaching oversold levels and DeMark exhaustion looks to be two-to-three days away from forming on AAPL stock on daily charts. Note: this likely should cause a possible trend reversal in AAPL before it breaks June lows at higher levels,” Newton says.
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 summary, Apple’s decline is not as bad as many fear it is, reckons Newton, and the tech sector has held up much better than many give it credit for in recent days. “Both factors should be important reasons why markets might be in position to bottom out at a time when many least expect it.”
Wall Street was in line for a mixed start to the day after stronger than forecast inflation numbers (see below), with S&P 500 futures /zigman2/quotes/209948968/delayed ES00 -1.67% down 0.1% to 3650. The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.15% , which at one this week touched 4%, dipped 8.7 basis points to 3.701%, though the dollar index /zigman2/quotes/210598269/delayed DXY +0.25% rose 0.2% to 112.52.
Nike shares /zigman2/quotes/203439053/composite NKE -1.98% are tumbling 11% in pre-market trading after the company released results after Thursday’s close and said margins would be hit by discounts to sell old stock.
There’s a big batch of economic data and Fed chatter for traders to consider on Friday. One of the central bank’s most closely watched inflation gauges, the PCE price index, showed core prices up 0.6% in August, higher than the 0.5% expected.