APPLE PLUNGES ON SALES WARNING -- STOCK INDEXES ARE FAILING AT OVERHEAD RESISTANCE LEVELS -- TREASURY YIELD FALLS TO LOWEST LEVEL IN A YEAR AS BOND PRICES SURGE -- GOLD AND YEN BENEFIT FROM SAFE HAVEN BUYING

APPLE PLUNGES ON FIRST QUARTER WARNING ... The price of Apple is plunging today after issuing a sales warning for the first quarter. The stock was already in trouble before that announcement. The weekly bars in Chart 1 show Apple (AAPL) falling today to the lowest level since the middle of 2017. An analyst on CNBC today sounded confident that the stock would do better than the rest of the market "on a relative basis". So far, that's not working out very well. The red line in the upper box is a ratio of Apple divided by the S&P 500. That falling ratio looks more like relative weakness to me. The stock has lost -38% since the start of October which is twice as much as the SPX. The first quarter warning came from a drop in iPhone sales in China, which is just the latest sign that weakness in that economy is starting to take a bigger bite out of earnings here. The plunge in Apple is also taking a heavy toll on semiconductor stocks and technology which is the day's weakest sector. With other trade sensitive stocks under pressure, U.S. stock indexes are having a very bad day. From a charting perspective, today's selling is coming at a bad time.

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Chart 1

S&P 500 MEETS SELLING AT FEBRUARY LOW ... Other writers on this site have already shown this next chart, but it bears repeating. Chart 2 shows the recent bounce in the S&P 500 meeting overhead resistance beneath its February intra-day low at 2532 (red arrow). The same is true of other major U.S. stock indexes. That's normal in a downtrend when previously broken support levels become new overhead resistance levels (red line). And it raises the likelihood of a retest of the December low.

Chart 2

TEN-YEAR TREASURY YIELD FALLS TO LOWEST LEVEL IN A YEAR... A lot of money rotating out of stocks since the fourth quarter has moved to the safety of Treasury bonds. That trend is contining today. Chart 3 shows the 10-Year Treasury Yield falling to the lowest since last January. Falling bond yields are usually a sign that investors are losing confidence in the U.S. economy. Falling bond yields translate into rising Treasury prices. Chart 4 shows the 7-10 Year Treasury Bond ETF (IEF) surging to the highest level in more than a year. That's also a sign that investors are losing confidence in the stock market.

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Chart 3

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Chart 4

GOLD AND THE YEN RISE ON SAFE HAVEN BUYING... The combination of falling stock prices and falling interest rates is pushing money into gold. The upper box in Chart 5 shows the Gold Shares SPDR (GLD) rising to the highest level since last June. Gold is rising despite the fact that the U.S. dollar is still relatively strong compared to most major foreign currencies. With one big exception. The lower box in Chart 5 shows the Japanese yen also surging over the last month. The yen is also viewed as a safe haven during times of financial stress. In addition, gold and the yen have a history of rising together when investors are getting nervous about the global economy. Gold has been out of favor as an alternative investment for several years. That appears to be changing.

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Chart 5

ALL OF A SUDDEN, THE FUNDAMENTALS AREN'T LOOKING AS STRONG ... The above headline is taken from an article on Bloomberg today which recounts all the experts assuring us during the fourth quarter that economic fundamentals remained strong in the face of heavy stock selling. Now we're finally getting a look at some of them. And they're not so strong. In addition to today's report on weaker Chinese iPhone sales, Chinese manufacturing activity during December fell below 50 for the first time in nearly two years (meaning that the world's second biggest economy is contracting). Bloomberg also reports that a gauge of U.S. factory activity for December fell to the lowest level in two years. Which is what the charts have been predicting for the last three months.