By Rocky White
There was quite a bit of news last week about a "death cross" occurring in Apple 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.
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 Brinker International[/entity], Inc. (NYSE:EAT) and Edward Lifesciences Corp (NYSE:EW). There doesn't seem to be any reason to fear the coming death cross on these names.[/entity]
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.
