Back in October, I mentioned there was one stock every investor should watch: Apple.
Because of the company’s huge market cap, AAPL has a big impact on market indices. It’s also the most widely owned stock by hedge funds.
For that reason, I mentioned it’s unlikely the market would rally without Apple. This has been the case so far. Since peaking in September, Apple is down 26%. The S&P 500 index did much better, dropping only 2%.
In other words, without Apple, the market can’t rally. It’s basically flat.
In that October commentary, I also mentioned that if AAPL dropped below its 200-day moving average, it would be a bad sign for the whole market. Well, things have only gotten worse since then.
It has not only violated that moving average, but the stock may be forming a very ugly pattern. [adcode]
The weekly chart below shows that Apple is forming a POTENTIAL “head and shoulders” pattern, which indicates the end of the stock’s uptrend. I emphasized the word “potential” because AAPL needs to close below $500 to complete the pattern.
If Apple closes below $500, a quick drop towards $400 isn’t at all unlikely. This would put tremendous pressure on the technology sector and the overall market.
So does that mean we’re doomed?
Not really. As I said, this could be a false alarm.
This bearish pattern is not complete yet. The stock has recently rebounded from the $500 level, and there are other technical signs that support a short-term rally.
If Apple moves above $575, which is the top of the “right shoulder,” it will be a good sign for the stock and the market. If it breaks below $500 in a decisive way, it will be a bad sign for the market.
So keep an eye on Apple. It can spoil the whole market if it breaks below $500.
Editor, Pure Income
How Will Obama React?
You are about to see a controversial new video.
It shows details of what will soon become the biggest political scandal of the Obama administration. Once it hits the mainstream media, millions of unprepared Americans will hit rock bottom.
How will Obama react? We’re not sure. Maybe you can tell us what you think once you see it for yourself.