Although the indices have been holding up quite well the last couple days, some problems have developed under the surface. There has been a rotation primarily out of big-cap technology and into other groups such as retail, financials and oil. This has benefited the Dow Jones Industrial Average, which is up 1.77% the last two days, but hurt the Nasdaq 100 ETF (QQQ) , which is down 0.23% over the same period.
This shift in the market is most noticeable in individual stocks, with many of the names that have enjoyed the best momentum in recent weeks starting to struggle while money rotated into stocks that have been laggards.
The bulls have tried to paint this action as broadening of the breakout move in the S&P 500 from its recent trading range, but the problem is that the leadership names have lost their luster. The choppiness and churning is a problem
Friday morning futures are indicated lower and tensions over the upcoming G7 meeting are receiving the blame. There have already been contentious tweets between President Trump and the leaders of France and Canada. Trump continues to stress that trade treaties have been unfair to the United States for many years and that he intends to see them changed. While he often backs off from such threats, this time there is little indication he will easily relent.
Another piece of major news this morning is a report from the Nikkei Asian Review that Apple (AAPL) has warned its suppliers that there will be a drop of roughly 20% in new iPhone part orders in the second half of the year. Apple typically releases its new phones during that period and this news is causing a reaction. It also explains why we may have be seeing recent pressure on technology and semiconductors names like Lam Research (LRCX) .
Apple stock is indicated down on this news so it is obviously being taken seriously. The question is whether this report along with the G7 issues will give the bears some traction. For a very long time, the bears have been amazingly incompetent at generating downside momentum. There may be a negative reaction to a headline but the dip buyers are soon there to start picking up the bargains. The Russell 2000 ETF (IWM) has only one occurrence of two successive negative days since the end of April.
So, the news flow is ripe for some selling. We will see soon enough how brave the dip buyers are on a Friday with these negative headlines. The market has been flashing some warning signs the last couple days and now it seems pretty obvious why that has been the case.