Indicator of the Week: "Death Crosses" on Individual Stocks
By Rocky White, Senior Quantitative Analyst
Foreword: There was quite a bit of news last week about a "death cross" occurring on AAPL (it happened on Friday). A death cross is flagged when a stock's 50-day moving average falls below its 200-day moving average. The chart below shows that since AAPL touched $700 in September, it has pulled back sharply, leading to the recent death cross. The last death cross on AAPL happened way back in 2008. Despite the scary name, two of the three signals on the chart below were immediately followed by big gains.
In fact, I went back to 1990 to find each time AAPL made a death cross. It has happened 16 times in the last 22 years, and the returns after a death cross are summarized below. AAPL immediately struggles in the first couple of weeks, averaging a loss of 3.33%, and is positive just 44% of the time. However, after those two weeks, the returns are very impressive. In the following three months, AAPL averages an 11.67% gain and is positive 63% of the time. In short, past death crosses on AAPL marked pretty good buying opportunities.
Individual Stocks: Death crosses are usually portrayed as bearish for a stock. As we see with AAPL, this is not always true. It's good to look at stocks on an individual basis. Below is a list of stocks that, like AAPL, are very near making a death cross. These are liquid stocks that have had at least five death crosses since 1990 and have performed well historically in the three months after making a death cross. You can see AAPL would actually be third on the list (sorted by average three-month return) after EAT and EW. There doesn't seem to be any reason to fear the coming death cross on these names.
So, are there any stocks on which a death cross SHOULD scare you? The list below may answer that question. Below is a list of stocks -- that could soon make a death cross -- which have not performed all that well after past occurrences.
Those were lists of stocks that are about to make a death cross. Below are similar lists, but they show stocks that have already made a death cross. The first list shows stocks that have performed well in the past after a death cross. AAPL, noted above, tops this list. The second table shows the stocks that have suffered losses (on average) in the three weeks following a death cross.
This Week's Key Events: One Last Fed Meeting for 2012
Schaeffer's Editorial Staff
Here is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
And now a sector of note...
We have maintained a bullish stance on the housing sector for much of 2012, and a recent pullback in the sector (and in member stocks) could represent a buying opportunity. The SPDR S&P Homebuilders Index (XHB - 25.58) -- which we like following because it's comprised of homebuilders and homebuilder-related stocks -- is currently pulling back to its 80-day moving average. This moving average, currently at $25.08, happens to coincide with the level representing the ETF's 50% year-to-date gain, at $25.65 (from its 2011 close of $17.10). Meanwhile, some other major names in the index, such as Lennar (LEN) and PulteGroup (PHM) are testing their respective 80-day trendlines; similar pullbacks in the past represented solid buying opportunities. What's more, many stocks in this sector remain highly shorted or have upgrade potential, as analysts remain skeptical, judging from the percentage of "buy" ratings. One caveat is the increased frequency of "housing recovery" and similar language that we've observed in recent weeks, even while several homebuilders were consolidating or pulling back. Also, there was a negative reaction to Toll Brothers (TOL) earnings on Dec. 4. Still, if you are looking for an entry point on homebuilders, now looks like the time. But keep your stops fairly tight, as failure at these moving averages could mean a larger pullback is imminent.
Prepare for the investing week ahead. Every week, Bernie Schaeffer and his staff provide you with their insight about what has happened and, more importantly, what will happen in the market. We dig deep and show you what's happening behind the scenes, and tell you which indicators are predicting major market moves. If you enjoyed this week's edition of Monday Morning Outlook, sign up here for free weekly delivery straight to your inbox.
The Case for Big Moves in IWM and QQQ
Featured Partners: AOL DailyFinance
© 2015 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242
Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: firstname.lastname@example.org
All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.
Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.