Should Investors Worry About an AAPL Stock Death Cross?

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aapl stock - Should Investors Worry About an AAPL Stock Death Cross?

Shares of technology giant Apple Inc. (NASDAQ:AAPL) have been in close focus lately as the stock exhibited more volatility to sink their teeth into. AAPL stock created a lot of fuss when it broke below its 200-day moving average on Aug. 3, and it has held below that level ever since.

Beat the BellBut should investors now be concerned a looming death cross as the stock’s 50-day moving average slices perilously close to its 200 day-moving average?

As I discussed on August 13, while a death cross makes for a good headline, empirically there is hopelessly little evidence of this technical occurrence being a reliably profitable signal. Of course, just like each stock, index, commodity or currency has its own personality, a death cross might have worked more consistently as a sell signal for some stocks than others.

Certainly there have been some signals that worked in the past, but as a single-factor signal it is rarely something to take too seriously, which is to say that other factors should be considered as well when spotting a death cross.

So, how does a death cross signal stack up for AAPL stock? Before looking at this a little more closely, allow me to set some context around the stock’s current state so we can consider the likelihood of a potential death cross more clearly.

In the bigger picture, AAPL stock undeniable remains in a big up-trend, but when the stock broke below its 200-day moving average a couple of weeks ago, it also broke below its lower weekly Bollinger Band, which is something it has not done in a long, long time. Furthermore, AAPL stock had been trading in a tight sideways range since February until the breakdown a few weeks ago, which is to say that this could have marked at least a multi-month top in the stock.

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Moving over to the daily chart, we see that when AAPL stock broke below its blue consolidation phase from the above chart, it also coincided with a break below the lower weekly Bollinger Band as well as below horizontal support (black) and the 200-day moving average (red).

In other words, in late July/early August the stock broke below a key confluence support area, after trotting sideways for more than five months. This move does suggest that a medium-term top is now in place.

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Looking back at the last two death crosses in AAPL stock, which did occur in bull markets, both need to be taken in context. In early December 2012, the 50-day moving average crossed below its 200-day, and the stock dropped another 25% over the ensuing four months or so. However, note that this death cross did not occur until the stock had already fallen about 20% off its highs.

The previous death cross occurred in September 2008, which saw the stock decline another 40% after the signal. Note, however, that this death cross occurred in the middle of the financial crisis when all risky assets sold off … and note that this death cross also didn’t signal until the stock had already dropped about 30% off its highs.

So, while a death cross in AAPL stock may have been bad news the past couple of times we saw one, it isn’t a near-term timing signal, as these signals tend to occur after the stock has already materially come off its highs.

While a death cross has not yet occurred in AAPL stock this time around, the stock currently sits about 15% off its highs. This next potential death cross would be taking place after the stock may have put in a more important intermediate-term top, yet remains in a bigger picture up-trend. Which is to say that further weakness could be expected upon the signal … but it won’t necessarily usher in a new and longer-lasting bear market for the stock.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, TheEssence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/apple-inc-aapl-stock-death-cross/.

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