Squawk Morning Briefing: Who Cares about AAPL and IBM?

Yesterday we talked about the importance of IBM with the DJIA. Despite a significant decline in the overweighted stock, the index managed to eek out a slim gain. The S&P 500, which wasn’t as burdened by the tech bellwether showed a more substantial gain on the day. There are two reasons that IBM didn’t weigh as heavily on the S&P:

1. The S&P 500 is market cap weighted.  That still gives IBM some importance in the index as the seventh largest company by market cap, but it’s not the biggest.
2. There are 499 other companies in the index to cushion against wide swings by IBM.  In the DJIA there are only 29 other stocks.

Despite the sell-off in IBM markets showed solid positive breadth on Wednesday and that helped the S&P 500 to print solidly in the green.  But it wasn’t only IBM weighing on the index: AAPL and XOM also closed the day in the red.  This is notable because these are the two largest companies by market cap and, therefore, they have the most impact.  It is notable that the index can shrug these heavy anchors and still rise based on the positives of a number of smaller companies.

Let’s remember that we are still in the heart of earnings season and there are still a number of important reports on the way including DJIA companies today and tomorrow.  GOOG, with the fourth largest market cap, reports after the bell and it could some impact on the S&P 500.  We want to keep these effects in mind when we assess the wave count.

In general, we are still expecting to print a new high in U. S. equities but the wave count but it is tricky to tell exactly where we are in the wave count.  The Dow futures seem to count a little cleaner than the cash index and suggest we might be ready for a fourth wave pullback.  This is reinforced by the notion that we might be approaching a spot for a counter-trend bounce in bonds and potentially nearing a short-term high in the Euro.  We just need to be cautious of trying to pinpoint exactly where a pullback might occur here because of the volatility from earnings and the lack of a crystal clear count.

Nevertheless, it would take much more significant selling than we’ve seen to alter out outlook for a new high in equities.  So long as a larger pullback looks corrective we would view it as an opportunity for nimble traders to join the uptrend.

 

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