Apple Death Cross Could Be Kiss Of Death For U.S. Markets

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Apple Computer (NYSEARCA:AAPL) has recently formed a “death cross” on its daily chart and this could be bad news not only for the stock but for the entire U.S. stock market.

 Apple Death Cross Could Be Kiss Of Death For U.S. MarketsIn the chart below, we can see how Apple (NYSEARCA:AAPL) recently formed the “death cross” in which the blue 50 day moving average crossed below the red 200 day moving average.  This formation is widely viewed in technical analysis as a “sell” signal for a particular company’s stock.

Much has been written about this recent death cross formation with some analysts viewing it as a buying opportunity and others saying it bodes harder times ahead for the company stock. Read “It Has Paid To Buy Apple On This Support Line”

aapl1211121 Apple Death Cross Could Be Kiss Of Death For U.S. MarketsChart courtesy of StockCharts.com

CNBC reports that the death cross has been largely bad news for Apple, as there have been six death crosses since 2000.  After those six events, the stock declined more than 5% within a month with an average loss of 10%.   The largest drop came in September, 2008, with a 27% decline and double digit declines were also recorded three other times. CNBC 

Apple’s Kiss Of Death For U.S. Stock Market?

While Apple investors should certainly pay attention to the “death cross,” this event also has potentially wide implications for the broader U.S. market.  Apple is the largest company in the world by market cap and makes up 15% of the Nasdaq Composite, more than Google and Microsoft combined.  It also makes up 20% of PowerShares QQQ, (NYSEARCA:QQQ) the leading Nasdaq tech ETF and Apple is the largest holding, by far, in the portfolios of U.S. hedge funds and largest mutual funds.

No other company has this kind of footprint in the U.S. stock market and so it’s easy to see how it’s quite likely that, “as goes Apple, so goes the market.” Read “Apple Breaking Monthly Support Line Again.

The long term chart of Apple (Nasdaq:AAPL) below shows us that Apple has made just three sustained breaks below its 200 day moving average and that the “death cross” has occurred on just three occasions including the one last week since the tranquil days of 2007.

In September, 2008, Apple broke its 200-day moving average and suffered a 50% decline by January, 2009.

More ominously, the S&P 500 (NYSEARCA:SPY) followed Apple’s descent, dropping 47% between September, 2008 and March, 2009.

aapl120212 Apple Death Cross Could Be Kiss Of Death For U.S. Marketschart courtesy of StockCharts.com

Finally a look at Apple (NYSEARCA:AAPL) compared to the S&P 500 in the chart below shows how tightly correlated the two markets are and how Apple tends to be a leading indicator for the S&P 500. (NYSEARCA:SPY)

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