Apple Inc. (AAPL): Debunking the Death Cross Hype

AAPL -- along with several other blue chips -- is on the verge of a 'death cross'

Aug 20, 2015 at 11:28 AM
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There's been a lot of chatter on financial media about an impending "death cross" for Apple Inc. (NASDAQ:AAPL). In a nutshell, a death cross is when a shorter-term moving average bearishly crosses a longer-term moving average, and most analysts focus on the 50-day and 200-day trendlines. The term was most recently in the Wall Street lexicon after the Dow's trendlines crossed earlier this month. Against this backdrop, we decided to take a look at past death crosses for AAPL, and what they could mean -- if anything -- going forward. You might be surprised.

At last check, AAPL is down 2.4% to sit at $112.28, following the broader equities markets lower. After spending most of the year bumping up against resistance in the $130 neighborhood, the stock took a turn for the worse late last month, and has surrendered more than 7% so far in August. The Dow bigwig's 50-day and 200-day moving averages are nearing one another, sitting around $123 and $121.60, respectively.

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Schaeffer's Senior Quantitative Analyst Rocky White crunched the numbers to see how AAPL has performed historically after death crosses. The last time the aforementioned trendlines threw up this signal was late 2012. In the week after, AAPL fell another 4.4%. Those losses steepened to nearly 20% after three months.

It was even worse in September 2008, with AAPL down more than 32% three months after a death cross. However, one could argue that 2008 wasn't a good time to be long, like, at all.

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In the grand scheme of things, though, the death cross hasn't been as scary as it sounds -- for AAPL, anyway. Since 1990, AAPL has made 17 death crosses. In the week after, the stock averaged a smaller return than usual -- 0.08%, compared to 0.6% -- but has been positive 53% of the time, in line with AAPL's anytime returns.

Going out to three months after this allegedly bearish signal, AAPL's average return is 9.8% -- higher than the stock's anytime three-month return of 7.8%. The same applies looking six months out; post-death cross, AAPL averages a gain of 18.1%, compared to its anytime gain of 16%. So, is the death cross really a long-term bullish signal?

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Among other S&P 500 Index (SPX) components whose 50- and 200-day moving averages are within close proximity -- under a 2% gap as of yesterday: fellow Dow components Cisco Systems, Inc. (NASDAQ:CSCO), Boeing Co (NYSE:BA), International Business Machines Corp. (NYSE:IBM), and Microsoft Corporation (NASDAQ:MSFT); retailer TJX Companies Inc (NYSE:TJX); tech concern F5 Networks, Inc. (NASDAQ:FFIV); and auto issues CarMax, Inc (NYSE:KMX) and AutoNation, Inc. (NYSE:AN).

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