Apple's Watershed Moment

 | Jan 24, 2013 | 8:35 AM EST
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Millions saw the apple fall, but Newton was the one who asked why. --Bernard Baruch

For many years, Apple's (AAPL) management was the master of managing expectations. They would low-ball the numbers, then blow them away with another huge quarter. Ironically, AAPL is now suffering from expectations it can't meet. The company reported better-than-expected earnings, but the guidance disappointed, leading to even more downgrades and target cuts by analysts this morning.

What is most surprising about AAPL is that the market has been pricing in bad news since September and the stock is already down nearly $200. Expectations were still not low enough, however, and the stock lost more than $50 in late trading Wednesday.

There will be plenty of commentary about AAPL today, but the most important issue is what it means for the broader market. If AAPL had disappointed like this last summer, it probably would have killed the market, but it hasn't been a leader for a while and the market doesn't seem to react to it all that much lately. It is not good when the largest component of the Nasdaq is under pressure, but it will likely be treated as a company-specific event and won't necessarily cause a mass exodus.

Given AAPL's weighting in the indices, it is having a mild impact so far. Yesterday, the good news from Google (GOOG) and IBM (IBM) didn't move the market much, and even with the poor AAPL action, the market is still hanging on to its uptrend.

The bigger issue for us to watch right now is whether AAPL will turn out to be an event that changes the character of the market action. The market has been running along very nicely so far this year. Despite constant warnings from the bears, we are not seeing anything too worrisome on a technical basis. Things are a bit extended and momentum is slowing but, as I discussed yesterday, we haven't even seen a weak finish this year.

The biggest negative I see is that action in individual stocks has been mixed. I'm seeing more reversals and random downswings triggering stops and ruining good patterns. This rally hasn't seen wild, positive, speculative action but it has seen a slow and steady slog that has greatly frustrated bears and underinvested bulls.

The trend is still up, but the bears have ammunition to work with and we need to tighten positions and protect profits. A weak finish would be a tip-off that conditions may be changing.

 Don't be too negative, as we still don't have any real price weakness, but there are chinks in the armor of the uptrend to worry about.

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