A pronounced market divergence today is likely setting up a vicious trap.
On the one hand, Apple and the rest of the high growth technology-led Nasdaq Composite Index are notably underperforming, down as much as nearly 5% and 1% intraday, respectively. In addition, copper giant Freeport McMoRan is throwing a wet blanket on the global risk appetite resurgence thesis with the market’s reaction to its acquisitions. Furthermore, defensive stocks like the utilities have seen a strong bounce off major support.
On the other hand, the financials and my current 12631 holding Bank of America are up well beyond 1% and 5%, respectively. The high beta small caps and the semiconductors have also seen little, if any, giveback after leading the charge higher the past few weeks.
Mixed signals is the first conclusion to draw from this type of action. However, if the bears fail to capitalize on Apple’s weakness by allowing other corners of the market to flourish, we are likely looking at a stock picker’s market at a minimum, if not an outright bear trap.
Bears are aiming for a close at or near the lows for the S&P 500, financials, and small caps, but as you can see on the XLF ETF 30-minute chart (second one) below, that is a tall task with the chart bull flagging nicely intraday after a strong pop.
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Easy fellas, that could be your grandmother.