Over the last few months, Apple (NASDAQ: AAPL) has — to put it lightly — been disappointing to those with $1000 price targets. Along with it, the NASDAQ 100 has not been in a similar slump. But recently, the technology market has broken its correlation with Apple.
The NASDAQ 100 ETF (NYSE: QQQ) once had a near near one-to-one correlation with Apple.
(A correlation coefficient quantifies the severity of a relationship. A figure above zero indicates a positive relationship, while a negative figure describes an inverse relationship.)
QQQ and AAPL had a near 0.91 correlation coefficient from mid-August until December. This relationship started to fade after December 3, 2012. The QQQ stood strong in the face of a deteriorating Apple.
It is an interesting exercise to see how Apple’s competition faired during this decline.
One can create a hypothetical “anti-Apple” index. An index composed of Research in Motion (NASDAQ: RIMM), Dell (NASDAQ: DELL), Amazon (NASDAQ: AMZN), Hewlett-Packard (NYSE: HPQ), and Microsoft (NASDAQ: MSFT). Each at a 20 percent weight.
From mid-September of 2012 until November of 2012, Apple and this concocted Anti-Apple index both sold off in similar stride. This time period was when Apple fell from $700 to $536. Apple fell 26 percent and the Anti-Apple index fell 15 percent, but this correlation was short lived.
Both found a similar short-term bottom on November 16 2012, but this is where it gets interesting.
After a ‘dead cat bounce’ the two started to diverge. The chart below displays this. Apple started to fall and Apple’s competition started to rally. Apple is down 18 percent and the Anti-Apple index is up roughly 11 percent from the top of the each “dead cat bounce.”
The action after the bounce of the September/November sell-off can be explained a few ways.
This divergence could be a function of portfolio and risk management. Most long-term investors in Apple have great gains and these profits could have been shifted around in order to protect and preserve capital.
Diversifying away from Apple and into other technology is one way to do this. The valuations of firms that compete with Apple seem low, because they have been dominated by Apple. This may be the new norm, for technology may soon become another low margin commodity business with low PE multiples.
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