This Slide Isn't Really About Apple

04/17/2012 10:56 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

The stock’s losing streak reflects investors’ insecurities about the stock market, writes senior editor Igor Greenwald.

When under fire in no man’s land, it’s never good to lose one’s leaders. Yet that was precisely the stock market’s predicament Monday, as the large-cap growth stocks that had powered its recent rally suffered heavy losses.

First in the firing line was Apple (AAPL), which dropped 4% to cap a rare five-day losing streak. It was solely responsible for two-thirds of the Nasdaq’s daily 0.8% drop, according to The Wall Street Journal.

Just two weeks ago, analysts were competing to write the sappiest mash note to the tech titan, with one proposing a 12-month $1,001 price target and another suggesting that Apple’s market cap could reach $1 trillion in two years.

But, as noted six weeks ago when the stock was 7% cheaper, Apple is doing so well that the mind boggles and the demands to know how and when the music’s going to stop.

So yesterday, we learned that US wireless carriers are getting tired of subsidizing the costly iPhone, that the demand for the new iPad might be lagging, and that Mac sales could disappoint when Apple reports earnings in a week. The last bit came from the same analyst who’s looking for a $1 trillion company by 2014, suggesting the road to that promised land might be bumpy.

Of course, it’s hardly a calamity when a stock that’s been overbought for the better part of two months finally comes in a bit ahead of earnings. For Apple, which is still taking share in just about every market in which it competes, this lowers the expectations bar a bit, leaving that much less room for disappointment.

But while Apple’s drop hardly portends disaster for the stock, its market import is a bit more ominous. Because Apple was hardly the only large-cap growth leader to take a hit. Google (GOOG), Priceline (PCLN), and Starbucks (SBUX) also suffered dramatic reversals of what had been, until recently, very good fortune.

Those were the very stocks that vaulted the S&P 500 to a four-year high at the start of the month, and they coasted on leftover momentum for another couple of weeks. But now the market has pulled back to its 50-day moving average, while some of its weaker sectors, notably energy and miners, are well below that measure and flashing distress signals.

So the question becomes whether this is a quickie rotation into the revived consumer discretionary sector, or the beginning of a deeper market slide. And either way, the near-term risks have begun overshadowing potential rewards for many.

The last time the market found itself in an analogous position—slipping from longtime highs because of trouble overseas—was last May, and the next six months didn’t go well. Then as now, bulls sought refuge in large-cap growth stocks, only to see them follow everything else lower.

So why not sell some big winners if the market is going to, at best, mark time while Europe and China sort out their issues? Last year, the people who couldn’t find a good answer to that question sold Apple shares 42% below their current price, and sold Priceline at a 24% discount to its value 11 months later.

But they looked really smart a month into the correction. Those raising cash just in case should have a plan for getting rid of it in case this proves to be a routine shakeout.

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