Analysis: AAPL XLE

In today's Action Alerts PLUS Daily Rundown, AAP team member Bob Lang explains why he's watching the 4,300 level on the S&P 500 and breaks down the catalysts that could shape next week's Fed decision.

He also takes a look at the charts of Apple (AAPL) and the Energy Select Sector SPDR Fund (XLE) .

Transcript: JD DURKIN: Good morning, members. AAP team member Bob Lang joins me now to give the club's read on what has been a bit of a slower trading week so far. Bob, good morning. Thank you for being here.

BOB LANG: Great to be with you, JD.

JD DURKIN: So let's start with a broader look at what could shape the market's next direction now that we finally at long last cleared the debt ceiling deal hurdle, the chaos that it was. Is the Fed decision next week the next catalyst to watch, you think?

BOB LANG: Well, if you combine two things together, JD, is not only the Fed meeting next week, which is on Tuesday and Wednesday, June 13 and 14, but also inflation data is coming out next week. That's also on those two days. CPI on Tuesday morning before the market opens. And then on Wednesday, we'll have the PPI.

So the Fed will have those two data pieces in hand before they make a decision on Wednesday at 2:00 Eastern time. So it would be interesting to see how they decide. I think this was a meeting that's going to have some contention to it, meaning I think there are some who are going to argue for the Fed to pause next week at the meeting in June. But there are others who say, no. No, we've got to be more aggressive and keep the pedal to the metal here on rate hikes because inflation is still too high.

I would tell you that the Cleveland Fed, which has a now casting estimate on inflation, is forecasting next week's CPI number, JD, to come in at about 2.5%, which is probably the lowest rating we've had since November or December of 2022. So while inflation is still elevated above the Fed's target objective, it's still looming down. And we could see some fireworks from that meeting next week.

JD DURKIN: And we do look forward to that meeting, for sure. Now, Bob, in an Alert on Monday, the team noted a bit of a disparity between the strong jobs report and the ISM non-manufacturing PMI. What's going on there? And help give us a little bit of context?

BOB LANG: Well, the ISM number, JD, was really kind of a little bit confusing. And it did show some job growth, but it also did show a lot more inflation. Whereas the jobs report on Friday, the NonFarm Payroll Report, did show very, very strong jobs growth again. And the 3-month average has started to accelerate again. We also saw some decreases in average hourly earnings.

The wage number, which is the number that the Fed has been concerned about, also dropped a bit slightly month-over-month and slightly year-over-year. So things are trending in the right direction, JD. But I think some of the other data, especially on the manufacturing side of the equation, are yet to trigger any inflation drops whatsoever.

JD DURKIN: All right, let's talk technicals. As we are having this conversation, the S&P is currently at 4,296. A lot of attention, of course, has recently been paid to the 4,200 level. What does the breach signify to you? Or is there another level, you think, members should be watching instead, Bob?

BOB LANG: So first of all, in the 4,200 level, JD, we were really stubborn in trying to break through that, and finally broke through that ceiling last week in a big way. Thursday and Friday of last week very, very strong price action, good volume, terrific breadth. And frankly, it really was a bit of a surprise that we moved so strongly, especially on Friday following that strong jobs report. And now, of course, the strong jobs report probably equates to the Fed being a little bit more aggressive on the rate hikes. And that actually ticked up on a Fed watch, Fed funds futures. But it's come back down a bit.

But what's interesting is that breaking through that 4,200 level, we do have a bit of a ceiling here at 4,300, which is right near where we're at currently. And you mentioned that we're just slightly below there at the moment here. Markets have been kind of drifting upwards for the past two or three days. We did have a sharp move up on Monday to start the week. And we came back down.

We actually came back down quite a bit yesterday and traveled right back up and closed near the highs of the session. So today will be an interesting day to see how we finish. Of course, again, leading into that Fed meeting next week, where it's going to be some let's call it "window dressing" in front of that, people are going to want to reposition themselves, take some money off the table. We've been seeing that with both fixed income bonds. Bond yields are starting to rise a little bit here in front of next week's meeting.

JD DURKIN: Is there any announcement you think would be a disappointment from the Fed in terms of a bit of a not so positive reaction for investors if they hear one thing or another from the Fed? Or is everyone just sort of in a wait and see mode?

BOB LANG: Yeah, I think that next week if the Fed comes out and says inflation is way too hot, we're going to continue to, again, put the pedal to the metal on Fed rate hikes and we see an increase in rate hikes on Fed funds futures, perhaps to 5.5%, maybe 6%, that's not going to look good for the equity markets. Because basically, the markets are betting on the Fed pausing here, and perhaps into the end of 2023.

We had seen recently that the Fed funds futures market was pricing in rate cuts. I think those have pretty much gone away. Maybe one rate cut, possibly two I know in the November or December meeting. After this meeting, there was only four Fed meetings left in 2023. We have July, September, November, and December. And I don't think that the market is getting it right with the rate cut probabilities here.

JD DURKIN: Bob, what does recent market breadth tell you about Wall Street's current mindset?

BOB LANG: Well, certainly volume is the big component that I pay attention to. But the market breadth is very important as well, too. We've got to see better market breadth for markets to continue to rise. And what is simply what is a breadth?

Basically, it is advancers over decliners. It's the raw number. It has nothing to do with market capitalization or weighting and so forth. You know, are more people buying stocks than they're selling? And it's really, JD, that simple.

So when market breadth is strong, it can lead markets to go even higher. When market breadth is weak, it can lead markets to go even lower. So we've had some good market breadth in two of the last three weeks.

We are on a buy signal right now on the breadth indicators that I use. However, one of the other breadth indicators that I use, called the McClellan Oscillator, is approaching overbought territory right now. And when we get to an overbought reading, it's a red flag, it's a danger signal that the markets are probably going to correct very, very soon.

JD DURKIN: The club's position, XLE, has been trading around $80 for the last six months or so. What is your outlook for oil, Bob, as we head into the summer months, especially, of course, given the recent announcement of more Saudi production cuts?

BOB LANG: Yeah, so those production cuts, JD, they've announced over the weekend another million barrels per day of cuts. They're trying to keep that price elevated around the $79, $80 level, possibly even more. We do know that the summer driving season accelerates the usage of gasoline. But then, again, a lot of people have Teslas so they don't have to go the gasoline station to fill up their tanks.

But be it as it may, I think that by in large the price of oil is going to start drifting higher, maybe up towards $85, towards $90 a barrel especially as, again, as the gasoline becomes tight in terms of supply. And I mean, it often stays that elevated up until Labor Day weekend. So we have another three months of higher gas prices.

Currently right now, we're seeing moderate gas prices around the country. They've risen just a little bit steadily for the past couple of weeks. But I think that by in large, again, JD, we're not going to get hit too hard. It's going to hit everybody in the wallet a little bit with an increase in gas prices.

JD DURKIN: All right, and finally I'm curious what you see in the chart specifically for a name like Apple. That stock opened at an all-time high ahead of the developers conference event. That was, of course, on Monday of this week. That was the level it has more or less maintained since. What does the current chart tell you about what might be next for that stock, Bob?

BOB LANG: Well, the stock pretty much, again, as you said, hit a new all-time high earlier in the week and backed off quite significantly, as it always does in front of these events. You know whether they have an event usually in September, they'll have a new event that announces maybe a new iPhone. That may be coming out in about three months. This Worldwide Developers Conference often comes out with new ideas and so forth.

And this time around, came in with a new AR VR glasses called the Vision Pro. $3,499 to buy one of these devices. Expensive. But listen, Apple has a great track record for bringing out new products. And even if they're expensive, they do sell a lot of things going forward. I think of the Apple heads out there who buy Macs, they buy iPhones, the iPads, and so forth are still going to come out and support their support their products as they have for the past 35 years.

So I think that Apple stock backing off a little bit into the mid $170s would be helpful and constructive to allow other people to get back in here. But I certainly think that with the chart the way it is, JD, $200 probably not too far off.

JD DURKIN: All right, Bob Lang, thank you for the context and perspective as always. Appreciate it.

BOB LANG: Always great to be with you, JD.

JD DURKIN: Thank you, my friend. And as we wrap, we would like to cordially invite all members to next week's members call. Chris Versace will be live with the Street's editor-in-chief, Sarah Silverstein. That's set for Wednesday, June 14 at 12 PM Eastern. They'll be reviewing each and every holding in the portfolio. So, please send us your questions. And you could do so by sending those questions to And we'll do our best to answer them all.

That'll do it for today, folks. Thanks for watching. We'll see you again soon.