Apple Inc. is about to experience major price correction – at least that’s what the technical picture is telling analysts. Granted, most long-term investors rely solely on the fundamentals of a company to design their portfolio, but there are some technical indicators that any serious investor shouldn’t ignore.
The death-cross is one such ominous sign that almost everyone on Wall Street is aware of. For the uninitiated, the term denotes the cross-over of the shorter-term 50-day moving average below the 200-day moving average. Bear markets start with a death-cross. Past data has repeatedly proved that hypothesis to be true.
Apple is in No Man’s Land
Apple Inc. shares are imperiously close to the zone. The stock might have stabilized just above multi-month lows, but any further down move could push the 50 MA below the 200 MA. Analysts expect that to be confirmed by the end of this month, which would then ring the start of a bear market. The last time a death-cross appeared in Apple, the stock went tumbling 27 percent in just 4 months.
Add to that the fact that Apple Inc. recently broke below a key support zone, which indicates that big institutions are net sellers. If the stock were to start correcting, analysts see the next major price support around the January lows of $105.
What is even more interesting is the simultaneous appearance of so many “death cross” patterns in major market indices as well as stocks for the first time in close to two years. The outlook is not very bright, and investors need to be cautious given the current broad market weakness.
On Monday morning, as Apple responded to a weak market across the board, death cross worries appeared to creep in across Wall Street. At time of writing shares in the firm were selling for $112.36, down 2.3 percent for the morning so far.
That’s the lowest level that shares in Tim Cook’s firm have traded at since January, and a sign that all might not be well for the firm as the world’s economy gets brittle, and the path ahead for the iPhone becomes less clear.
Fundamentals Don’t Exude Confidence
Economic headwinds in China – Apple Inc. ’s fastest growing market – and concerns about a slowdown in iPhone sales seem legitimate. The Chinese economy is projected to grow at a less than impressive 7 percent in 2015. Such a scenario will hit consumer spending, putting pressure on Apple’s revenues from China. The ASPs, in dollar terms could decline, or unit sales could dip if the company decides to raise prices.
Apple Inc. derives 60 percent of its total revenues and close to 75 percent of its profits from the iPhone. Investors are unsure about the device’s growth potential amidst the growing saturation in the smart phone market. Those concerns got reflected when Apple released its fiscal Q3 numbers. Although the tech giant easily beat earnings estimates, its iPhone shipments fell below Wall Street projections, sending the shares down by close to 14 percent in the three weeks since.
So what’s the verdict? Is the current decline in Apple Inc. ’s stock a short-term correction, or is it the start of a bigger down move? The technical evidence suggests the latter. As such, until the recent weakness is overcome, buying into the stock should be avoided.
Update 11:14 AM EDT: Added info about share price movement in early trading on Thursday.