A Rotten Apple (AAPL)?

When the market rebounded in mid-July AAPL began a healthy move higher. The week of July 24th saw the stock trade on high volume, a sign the rally had legs.

Last week marked AAPL’s 8th straight up week in a row, but gains had slowed to a crawl for a number of weeks and volume had been evaporating. Until yesterday.

Yesterday AAPL traded significantly above its 50 day volume average for the first time in about 7 weeks. Volume was almost double average in fact, and the stock was down about 1% on an up day for the market, although the stock finished well off its lows.

Now this morning the stock has already traded more than half its daily volume average and price is making little progress. Going nowhere on suddenly elevated volume is a sign of churning and smart money selling under cover of retail demand for a popular stock.

Unless AAPL can move definitively higher in the very near future we’d venture to say the stock might be topping.

We don't advocate shorting in a bull market. It is generally an unrewarding affair and there are usually better gains if one is well positioned long in the correct stocks. But AAPL is a significant enough leader in the current rally that we believe it should be monitored as part of your overall market evaluation.

Should AAPL indeed top it doesn’t have to be a bad sign for the market. In fact if interpreted a certain way it could be a good one. AAPL has had slowing growth for some time yet has made a shocking move off its March low. That could be because money managers wanted to participate in the rally and not seeing growth elsewhere might have viewed AAPL as a safe haven. With signs of recovering growth abounding there are suddenly far more investment choices. Money might be pouring out of AAPL as the taste for risk intensifies.

Whatever the reason, if we were long AAPL we’d have our caution antennae out.