Will Weakness In Apple Be A Drag On The NASDAQ? ($QQQ, $AAPL)

In my previous blog post, I showed how the S&P 500 reversed higher after undercutting its 50-day moving average on the morning of September 24.

Obviously, yesterday’s (September 25) sharp selloff undermined that day’s bullish reversal in the S&P 500, while causing the NASDAQ to follow suit with its test of the 50-day moving average as well:

As you can see, $QQQ (NASDAQ 100 Index) closed just below its 50-day moving average yesterday.

The last time $QQQ came into support of its 50-day moving average, back in the beginning of the previous month, it was a buying opportunity that launched the index to fresh new highs two weeks later.

While it’s obviously possible the same scenario could happen again, we are seeing more reason to be cautious this time around.

For starters, notice the volume spike that accompanied yesterday’s plunge in $QQQ; it was the highest turnover day the benchmark tech ETF has seen since April of this year.

Yesterday’s volume surge in the NASDAQ tells us institutional traders who move the market were headed for the exit doors yesterday.

Confirming the distribution was the relative weakness in leading stock Apple ($AAPL), which closed below its 50-day moving average for the first time in 5 months:

When the NASDAQ dipped below its 50-day moving average for a few days in the beginning of August, $AAPL showed slight relative strength by still managing to close above its 50-day moving average every day at that time.

But this time, it is the opposite scenario, meaning $AAPL is exhibiting relative weakness to the index. Looking at recent volume patterns, the distribution in $AAPL is also confirmed.

Since $AAPL is so heavily weighted within the index, the NASDAQ will have trouble holding onto its 50-day moving average as long as selling pressure in $AAPL persists (continue keeping an eye on the performance of Tesla [$TSLA] as a leading indicator as well).

Due to the combination of the S&P 500 convincingly slicing through support of its 50-day moving average and increasing distribution in the NASDAQ, my proprietary market timing model shifted from “Buy” to “Neutral” mode as of yesterday’s close.

This means I will reduce market exposure and risk by easing off on new trade entries and increasing cash position, while also reducing average share size on any new positions entered in my nightly stock picking newsletter.

It also means the newsletter portfolio may now dip a toe in the short side of the market as new opportunities present themselves.

Is Apple finally headed for a significant pullback? Will it hold the NASDAQ down? Share your thoughts below.