Apple Can Get Bruised, so Watch Out

Apple (AAPL)  is the most important stock in the market.

It’s widely held by both institutional and retail traders. It’s the largest component of the S&P 500, with a weighting of close to 7% of that index. It’s the largest stock on the Nasdaq Composite.

Shortly after Wednesday’s open, Apple shares dropped by about 4.5%. The stock fought back to close down 1.48%.

At issue was a rumor that Apple no longer needs to increase production of its new iPhone 14 models. It was previously believed that strong demand, especially for the iPhone 14 Pro model, would lead to the production of an additional six million units.

As Wednesday’s trading played out, various players came to Apple’s defense. I kept hearing about how Apple is a perfect target for rumors, because the company won’t confirm or deny. Therefore, any Apple rumor should be taken with a grain of salt.

I kept hearing about how we’ve been through this before, particularly rumors about suppliers being told to reduce production of iPhone parts. That last one is an evergreen; it repeats every two years or so. Of course, Apple never denies it.

All of this reminds me of a popular phrase: Read the room.

Who else is in the room? There’s FedEx (FDX) , a bellwether transportation stock. The CEO claims we’re entering a worldwide recession. There’s Lyft (LYFT) , which just stopped hiring drivers.

There’s the Bank of England, which saved everyone’s bacon by announcing a new bond-buying binge on Wednesday. That prevented U.K. bonds from crashing, which would’ve had knock-on effects on U.S. markets. You can thank the BoE for Wednesday’s stock and bond rallies.

With this backdrop, it’s not hard to imagine that Apple’s issues with demand are real.

Just two weeks ago, I pointed out that Apple’s new status as the most-shorted stock was a tell. That day, the stock reached a high of $160.54. On Wednesday, it closed at $149.84.

According to its chart, Apple is clearly in a bear channel. The stock appears headed back to $145 by early next month. Apple is trading below its 50-day (blue) and 200-day (red) moving averages, which are both tilting lower.

Chart by TradeStation

Why did Apple become the most shorted stock? Because someone knows or strongly believes that there is something wrong with it. If you assume someone knows something that you don’t know, you’ll rarely be disappointed.

We are quick to dismiss any issues with Apple, because we’ve heard it all before. That much is true.

Those rumors, however, have a better chance of being true this time around, if we read the room.