ETFs Flat, Apple Falls From Tree

Apple Computer (AAPL) is a major player in U.S. stock indexes and ETFs since it’s the largest company in the world and often plays the roll of “tail wagging the dog.”

Apple (AAPL) makes up 10% of the Nasdaq Composite, more than Google and Microsoft combined, 4% of the entire S&P 500 (SPY) and 20% of PowerShares QQQ (QQQ), the leading Nasdaq tech ETF.

Apple’s problems spring from declining iPhone sales and from technical weakness since the company’s stock recently formed a “death cross” pattern, which is a widely respected “sell” signal.

For the day, major indexes and their related ETFs finished mixed. The Dow Jones Industrial Average (DIA) gained 0.14%, the S&P 500 (SPY) slipped 0.09%, the Nasdaq 100 (QQQ) dropped 0.46% and the Russell 2000 (IWM) lost 0.08%.

In addition to Apple’s (Nasdaq:AAPL) problems, things continue to be grim in Europe with 16 of 27 nations reporting yearly declines in industrial production.

The other big news of the day came from Washington where the White House and Congress traded opening salvos over the upcoming debt ceiling debate. President Obama said he wasn’t going to negotiate over raising the debt ceiling while Senator Mitch McConnell and Speaker of the House Boehner seem intent on sticking with their plan to link every dollar in debt ceiling increase to one dollar in spending cuts.

This issue is about to move to the front burner as Treasury Secretary Geithner said that the U.S. could default on its debt as early as mid-February. The last debt ceiling standoff led to the fiscal cliff and a 15% decline in the S&P 500 (SPY) so the next few weeks are likely to be highly interesting, indeed, for U.S. stocks and ETFs.

On a technical basis, the S&P 500 (SPY) remains stalled at significant resistance levels and will need to break through the 1470 level to move higher.

Bottom line: Apple (AAPL) and its “death cross” will continue to weigh on major US indexes and ETFs as its the largest company in both the S&P 500 (SPY) and Nasdaq Composite (QQQ) and, starting today, the debt ceiling debate will replace the fiscal cliff as the crisis of the month.

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