One week ago I posted that this bear rally was coming to an end. Actually the post was intended to be a scathing review of a few Apple analysts that are doing a disservice to investors by inventing this cloak of invincibility around Apple. Well, no company is safe in this market, least of all a consumer driven company like Apple. So, this post is further evidence that this bear rally has come to an end and that Apple is likely decline even further.

So last week we lost the 20 day moving average with some force. I felt at that time that it was just a matter of time before the markets moved lower to retest the November lows. But then we got an artificial infusion of hope from our government when the Fed cut bank lending rates to zero, and the promise to throw everything, including the kitchen sink at this economy. It was an act of desperation, that is doomed to fail. In my view, the Fed has dealt their last card and have all but admitted that we’re heading towards a depression.

Well cutting the rates to zero gave the Bulls a new ray of hope, as the S&P had the chance to challenge the 50 day moving average. The Bulls knew that if they could capture the 50s, then there was a good chance to continue the rally and extend the hope. The problem is that all past Fed exploits designed to inject optimism and confidence into investors has failed, so why would anyone think any different from this move, is beyond me. In any event, the 50s proved too much as we rejected that level soundly today (Thursday, December 18) and essentially negated the effects of the rate cut.

So from a technical point of view this rally has been setting up into a rising wedge, which is a bearish reversal pattern. The past few days have solidified the pattern, and now we’re on the cusp of breaking down. The Bulls have lost control, and the Bears are now in the driver’s seat. The S&P closed just above the critical support trend line of the pattern which is at 880. As I write this on Thursday evening, the after hours futures are pointing towards a gap down. If this position holds into tomorrow morning and we gap down below 880, then the probability is that the markets will drop hard and the pattern will play out, and in time we will revisit the November lows.

Apple has been a relative poor performer in this rally. While the S&P and and Nasdaq have rallied and maintained a 20% gain off the bottom, Apple has given back 50% of it’s gain. More importantly, Apple has fallen below it’s critical support level of 95. The next support level for Apple is in the 84 to 85 range. So, if we gap down tomorrow on the S&P, then I would suspect that Apple will also drop to this support level. If we continue lower on the indexes over time, as I suspect we will to test the November lows, then Apple will likely test it’s lows as well which is 79.14. I believe it’s possible for Apple to breach this low, but it should show very strong support in the 72 to 74 range.