We already knew that, broadly speaking, the market is not facing the easiest of times. After all, we have already seen how the SPDR S&P 500 Trust ETF (SPY) follows earnings estimates, earnings estimates follow the ISM, and the ISM follows the real time surveys, and these are saying "down".
Still, there are now a couple of other signs that seem to imply not only a further leg down, but one led lower by tech companies such as those that overwhelmingly make up the Nasdaq 100 index (PowerShares QQQ Trust ETF: QQQ).
Why is this so?
Well, first off, the Nasdaq 100 has been greatly helped by Apple Inc.'s (AAPL) performance this year. Apple has the largest weight in the index and is up 51.6% year-to-date, with the Nasdaq 100 index being up 14.6%. Given Apple's weight of around 15% at the start of the year, this grossly means that Apple represented more than half of Nasdaq 100's gains. And obviously, the sheer magnitude of Apple's rally certainly dragged many other stocks up as well.
The problem, however, is that even while Apple is still cheap fundamentally, there seems to be good reason to believe this quarter's estimates got a bit ahead of themselves. With Topeka Capital's monitoring of Apple suppliers showing some larger-than-expected weakness, it's possible that some temporary pressure could hit Apple either before or after its July 24 earnings date. And as we've seen, as Apple goes, so does the Nasdaq 100.
It's not just Apple, though
The motives for a tech-led leg down don't stop at Apple. Intel Corporation (INTC) is probably also headed for some weakness. At least if we're to believe that Advanced Micro Devices, Inc.'s (AMD) reported weakness out of Europe and China extends to Intel's business. Advanced Micro Devices' guidance was for a brutal 11% drop quarter-on-quarter versus expectations of +-3%. Intel's estimates, though cut slightly, are still for a flat quarter-on-quarter EPS. These seem too optimistic now.
Obviously, if Intel and Advanced Micro Devices turn out to have been hit with slower-than-expected demand, then it will be hard for Microsoft Corporation (MSFT) to have avoided being hit as well. Especially as we approach the Windows 8 launch, which will probably lead to some delay in buying decisions.
There is good reason to believe that almost the entire "who's who" of tech companies will see a soft spot in the quarter that just ended. Couple this with the earnings insight I had already put forward, and it seems very likely that the market will see a tech-led leg down within the very short term.
Obviously, if and when the Federal Reserve decides to act, then all bets are off, and the market will turn up.
Additional disclosure: I will probably short NQ (Nasdaq 100 emini-futures) within the next 72 hours.