INVESTORS WARN: A “Death Cross” Is About To Strike Apple…

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The markets are in a bloodbath, and Apple’s stock is in the gutter.

Reports have indicated that Apple’s stock is now officially in the bear market (the stock plunged 16%, then another 6% in a single day — it closed the week after falling more than 20% from its 52 week peak).

Things could, however, get much worse for Apple.

Investors have been warning of a “death cross” in Apple stock movement, which foreshadows a much steeper decline in the close future. As MarketWatch reported, the last time the “death cross” struck Apple, the company’s stock dived 27% over the next four months.

What happened the last time a
CHART: What happened the last time a “death cross” struck Apple… | Source: MW
While it’s true that a company’s stock price is rarely affected by the company’s operations as much as it is by market reactions, in the case of Apple, there are some definitive reasons as to why investors are bearish about the stock.

Here are the five biggest…

1. China 

China’s market is in a free fall, and we’ve seen huge sell-offs in the Chinese stock market. Much of Apple’s current success is dependent on the health of its Chinese business — in fact, 26.4% of the iPhones (Apple’s most profitable product, by far) the company sold in Q2 of 2015 was in China.

However, as important as the Chinese market is to Apple, it’s not one the company can count on reliably: demand spikes each time Apple releases a new product, but tanks almost immediately after. Case in point: the release of the iPhone 6 gave Apple a huge boost in China in Q4 of 2014 but Apple’s shares of all smartphone sales fell drastically the next quarter.

Due to ongoing concerns in the Chinese market, firms such as Cowen has downgraded their outlook on Apple from “Outperform” to “Market Perform”.

Apple China Marketshare iPhone

2. Can’t milk the iPhone 6/6 Plus anymore

The iPhone 6/6 Plus is at the end of its product cycle. With the next-generation iPhone 6S/6S Plus due next month, no one’s buying Apple’s most profitable product any longer. Investors know this, and therefore aren’t expecting much growth in the near future, at least until the next-generation iPhones are released.

The next-generation iPhones is said to come with a 12MP camera capable of 4K recording, a pressure-sensitive Force Touch display, an entirely new wireless chip and a bunch of other incremental improvements, all in the same form factor as the current generation of iPhones.

According to WSJ, Apple is stock-piling 90 million units for the launch.

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Leaked image of the iPhone 6S shell indicating a much faster and battery efficient wireless chip | Source: 9to5Mac

3. Mystery over the Apple Watch

How well or poorly is Apple’s latest product line doing?

No one knows.

The company declined to release any indication as to how the Apple Watch is doing in its latest earnings report, apart from giving the usual “better than expected” boilerplate without any figures to back the claim up.

Since its launch, the Watch has received mixed reviews, and although Apple — to its credit — is rectifying the situation rapidly with the imminent release of WatchOS 2,  no one really knows how much the fix is going to affect sales directly (probably not much, if at all). Sure, Apple is leading in the smartwatch category, but at the same time no one really knows how big or small the smartwatch market opportunity is.

CHART: The Watch is clearly beating all its competitors, but... | Source: BI
The Watch is clearly beating all its competitors, but nobody knows how big the market opportunity is… | Source: BI

4. Apple Music, another new product category, is failing

When a recent report from music industry research company MusicWatch found that 48% of the 5,000 participants surveyed who had tried out Apple’s new music streaming service had stopped using it, Apple rebutted the figure quickly: only 21% of users who had tried the service defected, the company said, almost half less than the initial number reported by MusicWatch. On the face of it, Apple’s rebuttal might’ve silenced some of the company’s skeptics… but look at that figure again: 21% decided that, for some reason or another, Apple’s latest product offering isn’t suitable for them.

This isn’t the perfect analogy, but imagine if, one day, Apple releases a new physical product and after purchasing it, 21% of its customers decide to return the product.

It would’ve been a disaster for the company.

Sure, 21% is better than 48%, but in the grand scheme of things, it’s not encouraging by any means.

All the hurdles Apple will have to overcome isn't exactly encouraging... | Source: Statista
All the hurdles Apple has to overcome in order to dominate isn’t exactly encouraging… | Source: Statista

5. Everything is a disaster, and Apple is just a victim

Apple is one of the few big-name and closely-watched stocks getting crushed by the market correction, and the deep dive in stock price can be attributed to what happens in the late stages of bull markets.

Investors could also be selling off Apple stocks in anticipation for an underwhelming future product line, or as a reactionary measure against the floundering stock market (in other words, in panic).

Either way, these aren’t things the company can control.

Apple is a victim of the panic in the stock market... |Source: CNBC
Apple is a victim of the panic in the stock market amid corrections… | Source: CNBC