An Apple (NASDAQ:AAPL) "Death Cross" is coming! An Apple "Death Cross" is coming! Oh no!
Calm down, these things happen from time to time. Chart readers and market technicians put an awful lot of weight in moving averages. I would know, as I used to talk to hyper-active day traders (those that traded a minimum of 500 times per year, with some that traded upwards of 50,000 times per year) on a daily basis in a former life. That demographic is likely freaking out right about now, as the ominous sounding "Death Cross" has been spotted on the horizon of Apple's price chart.
As a refresher, a "Death Cross" is when a stock's 50-day simple moving average crosses below the 200-day simple moving average. The thinking behind the formation is that if the more responsive 50-day SMA crosses below the slower-moving 200-day SMA, then a trend reversal is in store and some downside is to be expected. Cue the headlines now.
It probably goes without saying, but we Fools tend to shy away from reading charts. As far as this "Death Cross" noise goes? It's just plain silly.
A walk down memory lane
It's true that the last time the "Death Cross" was spotted in 2012, shares lost over 25% of their value in subsequent months.
However, it's also true that investors who took advantage of the weakness and bought at 2013 lows of around $55 (split-adjusted) would be sitting on over 100% gains right about now. Chances to double your money on Apple in just over two years don't come around very often these days, with the Mac maker now being the most valuable publicly traded company on Earth.
Going further back, there was another "Death Cross" spotted in 2008. Actually, there were two that occurred within about six months. Shares did fall throughout 2009, but you might remember a little event that I like to call the "Global Financial Crisis" and the related volatility that could have had something to do with it. We don't even need to discuss what kind of returns you'd be enjoying if you bought during the market bottom of 2009.
The 2006 "Death Cross" was quite muted. Shares dipped for a couple of weeks but promptly recovered.
This was all before the iPhone was officially unveiled.
There's plenty more where that came from
The overarching theme here is that "Death Crosses," and technical analysis generally don't yield consistent results from their predictions. Long-term investors should focus on a company's fundamentals instead of short-term chart patterns. Don't just take my word for it though. Schaeffer's Investment Research has done some extensive number crunching on Apple's history of "Death Crosses" going all the way back to 1990 and you can quickly see the lack of consistency or predictability.
Apple has been pulling back lately, but I think the current share weakness is more of a buying opportunity. If the "Death Cross" sentiment makes shares even weaker, I'd just consider it even more of a buying opportunity.
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.