Let's talk about Apple (NASDAQ: AAPL ) . The most valuable brand name in the world has taken a drubbing from Mr. Market recently, with the stock price falling 20% in the past three months. At $500, is Apple the dream buy that investors in August were praying for, or does the stock still have further to fall?
When the trend is not your friend?
Apple has put braces on more crooked teeth, paid down more underwater mortgages, and rescued the careers of more hedge fund managers than any other large cap of the past two years. Buying the dips has been a successful strategy, as it has bounced off support levels like a kid on a trampoline -- at least up until October.
What changed? Not the fundamentals. Assessing things from that perspective still gives credence to the idea that Apple's just as dominant as ever. The iPad accounted for 88.3% of Black Friday tablet shopping --an impressive figure that shows its continuing dominance in the tablet space. Apple's supply chain has healed, with Citi analysts reporting a 45% to 50% increase in iPhone 5 output, even as they downgraded Apple and its suppliers on demand concerns.
Yet while Apple selling is invariably couched in fundamentals-based terms like the Apple Maps brouhaha, supply chain problems, good old-fashioned profit taking, and a capital gains tax increase in 2013, the fact remains that this is a technical, trend-based reversal.
The death cross
On Dec. 7, Apple finally succumbed to the "death cross," as the company's 50-day moving average broke below its 200-day moving average. For momentum traders, a death cross signals an impending bear market in an individual stock and future declines on the horizon.
And that's it, really. Yes, institutional investors are doing some profit taking. Yes, the Maps flap gave Cupertino a black eye. The fiscal cliff and impending higher capital gains taxes are taking a big bite. But the Known Unknown that's currently keeping a lid on Apple's stock isn't a fundamental indicator, it's a technical one, and for this, Foolish, fundamentally savvy investors should be thankful.
Don't fear the reaper
Is the death cross a statistical superstition? That's debatable. According to Schaeffer's Investment Research, the S&P 500 returned only 5.7% in the year following a death-cross vs. an average gain of 9.1% -- so the death cross may potentially measure something.
However, the death cross hasn't been a very reliable indicator lately. The markets have been coughing up blood since the U.S. election. Given all the negative sentiment currently priced into the market as a result of Europe, what may have once been a reliable indicator is now anything but.
Google formed a death cross in June, only to skyrocket 27% over the next four months on a positive earnings report.
As Schaffer's own Bryan Sapp admits, "Whenever something this obscure goes mainstream, your radar as a contrarian should be going bananas." Indeed, historically, the appearance of a death cross is exactly when you want to buy Apple. In the five Apple death crosses since 2000, Apple shares have initially softened, only to come roaring back within the next two earnings reports.
With newly revamped iPhones and iPads, not to mention the new form factor for its iPad Mini, Apple's poised yet again to prove the doubters wrong in 2013. Especially selling at the massive discounts to the broader market, despite blowing most other stocks out of the water in key performance metrics, Apple seems like a safe bet to reward investors who can look past the negative hype in 2013.
There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.