Malcolm Graham
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A ‘death cross’ in Apple’s stock is coming

Bearish ‘death cross’ pattern should be confirmed this month

Apple’s stock may be headed for bear-market territory

One bearish chart for Apple Inc.’s stock doesn’t a bear market make…but how about four scary-looking charts?

Apple shares AAPL, -0.60% have stabilized just above multi-month lows, but this slideshow of charts warns that not only should investors be wary of buying the stock, but that a further selloff into bear-market territory could be right around the corner.

First is an impending bearish “death cross” pattern, in which the 50-day moving average crosses below the 200-day moving average. This pattern is seen by many as marking the spot that a shorter-term decline graduates into a longer-term downtrend.

While the validity of the “death cross” has been widely debated, the last time one appeared, just as the stock was pulling back from record highs, the stock fell another 27% in four months.

Based on the current trajectories of Apple’s 50-day and 200-day moving averages, a “death cross” should be confirmed in a little over a week, or at least by the end of the month.

The fact that so many “death cross” patterns have appeared recently in major market indexes as well as in individual stocks for the first time in nearly two years suggests the current broad market weakness is different than the short pullbacks that occurred earlier this year, and in October 2014.

Adam Sarhan, CEO of financial advisory firm Sarhan Capital, said he turned bearish on Apple’s stock earlier this month, after being bullish for about 1 1/2 years, because it broke below key support, including the 200-day moving average.

“When you see a major break in a stock like Apple, that means the big institutions are selling, not buying the stock,” Sarhan said in a phone interview with MarketWatch. “We saw this in 2012.”

Sarhan sees the next support area around the January lows below $105.

That would put the stock below the bear market threshold—a decline of at least 20% from a significant high, which was $133 on Feb. 23 in Apple’s case—of $106.40.

“Until the technical damage is repaired [with a rise back above the 200-day moving average], the path of least resistance is down,” Sarhan said.