NEW YORK (Reuters) - Apple Inc seems to still be the drug of choice for consumers of all stripes looking for sleek gadgetry.
But traders are starting to doubt the hype, and the stock's technicals are painting a bleak picture ahead of Apple's earnings due Thursday.
According to technical analysis, which strips away Apple's sales, brand recognition, earnings or any other fundamental information, the outlook is bearish. Charts suggest the stock may have further to fall after recent losses, and short interest - bets against the shares - are at a two-year high.
That is bad news for the maker of the iPhone and other media devices, and potentially for the market.
In the short term at least, the broader market follows Apple's moves. The stock's 20-day correlation with the S&P 500 index peaked this year at a near-perfect 0.98 in January and is now near 0.8. Going back four years, it has been negative only a handful of days.
"When (Apple) was on its meteoric rise, its size helped carry S&P indexes materially higher and now it's been a headwind for the market," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
Apple shares are up more than 50 percent so far this year but still more than 10 percent below the record closing high of $702.10 just a month ago. Ahead of its earnings Thursday after the market's close, some technical indicators on the stock are hinting at more declines.
The last time the stock closed above its 14-day moving average was a month ago and its 50-day average is now on a downward slope, indicating both short- and midterm trends are negative. Fifty-day momentum is at its lowest since June.
The weekly moving average convergence-divergence (MAC-D) - a momentum indicator that tracks a stock's performance against itself - triggered a sell signal last week.
"Apple is near-term oversold but bigger-picture things don't look good from a purely technical backdrop," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "I'd advise being very careful if you are long this one."
Short interest on Apple, or shares borrowed by traders to sell on expectation of a price drop, rose in the latest reporting period to its highest since February 2010.
At just above 16 million shares, the amount is still less than a day's worth of trading in volume terms. But the piling up of bets against the most powerful stock in the market -and one of the most expensive- is surely another red flag.
There are, nonetheless, a few technical rays of hope. Think of them as lucky numbers, as if Apple shares read the horoscope.
The stock is near-term "oversold." Its 14-day relative strength index, or RSI, which compares the size of recent gains and recent losses, sits around 40, a signal that perhaps the selling in shares has carried too far.
The year's low for this indicator was just above 30, and that came in mid-May, at the start of a rally that lifted the stock almost 35 percent to its record high above $700.
The stock is also trading near key support levels - spots where clusters of buying can be expected based on technical patterns. That could mean the downside is also limited and it could be a good time to buy.
"I say the potential bottom is in the range of $580 to $592," said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.
"It's getting close to the bottom part of its trading band," which he said was bullish ahead of earnings.
Apple October weekly options were pricing in an estimated move of about 5.5 percent in either direction as of Wednesday morning, according to Philip Saunders, equity derivatives strategist at Topeka Capital Markets.
The expected move is above the average 4.2 percent one-day move over the last eight earnings announcements.
On July 24, Apple shares fell more than 5 percent in extended trading after the company reported its second quarterly miss in less than a year. The next day, the stock fell 4.3 percent to close at $574.97.
Reporting by Rodrigo Campos, additional reporting by Doris Frankel and Chuck Mikolajczak; Editing by Kenneth Barry