Apple's divergence from Nasdaq could spell trouble for tech stocks' rally

Apple stock’s blues could signal a cooing in the Nasdaq’s record-setting rally.

Apple’s stock is marching to a different drumbeat to the Nasdaq and that is a bearish sign for the technology sector’s powerful rally which has helped the U.S. stock market notch back-to-back records this year.

Apple Inc. AAPL, -1.38% shares are down nearly 4% this week, battered by connectivity issues with the company’s new smartwatch, giving the stock little chance to bask in the positive reception of its new generation iPhone X.

Tom McClellan, editor of eponymous market newsletter and a prominent technical analyst, said a divergence between Apple and the Nasdaq-100 NDX, -0.46% is a worrisome sign given Apple’s significant influence on the broader market.

“The basic idea here is that when a disagreement arises between Apple and the Nasdaq, it is usually Apple that ends up being right about where both are headed,” wrote McClellan in a report earlier this week.

Apple is down 2% over the past month while the Nasdaq is up 3.5% over the same period. Apple has soared 33% and the tech benchmark has gained 20% versus 12% for the S&P 500 index SPX, -0.20% and the Dow Jones Industrial Average’s DJIA, -0.17% 13% gain.

“It is not that Apple’s weakness or strength causes the same to appear in the overall Nasdaq, but rather that Apple seems to respond to changes in liquidity ahead of the index,”

This divergence between the Nasdaq index and its biggest component is likely to remain in play until Apple can recover and reclaim its 52-week high of $164.94 set on Sept. 1. Apple shares are off 1.2% to trade at $154.10 Thursday.

Still, despite Apple stock’s struggles, analysts remain mostly upbeat on the tech giant’s outlook.

Katy Huberty, Morgan Stanley’s IT hardware analyst, on Tuesday raised Apple’ price target to $194 from $182 and kept her “overweight” rating on the stock, noting that the company’s “aspirational” brand, high customer loyalty, and weaker U.S. dollar DXY, -0.22% allows the iPhone maker to increase prices without dampening demand.

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