Apple stock formed a bearish "death cross" pattern in its chart yesterday (Wednesday), giving Wall Street one more thing to worry about.
Apple Inc. (Nasdaq: AAPL) stock ended the day up 5.74% at $109.69, but is still down 18.5% from its 52-week high of $134.54 reached April 28.
Technical analysts see a death cross as a signal that a short-term drop is about to become a long-term slump.
So what exactly is a death cross?
A death cross is simply when the 50-day moving average crosses below the 200-day moving average. Investors hate to see a death cross because it's generally pretty accurate.
For example, the Dow Jones Industrial Average chart formed a death cross on Aug. 11. The Dow Jones shed 11% over the next two weeks. (That was before yesterday's dramatic 619-point increase.)
As for AAPL stock, it has seen the death cross before. The last two occasions were in 2008 and 2012.
How Apple Stock Has Fared After a Death Cross
After Apple stock formed a death cross on Sept. 23, 2008, it plunged 38% over the following four months.
More recently, Apple stock formed a death cross on Dec. 7, 2012. Over the next four months, the AAPL stock price fell 27%.
Does that mean Apple stock could see a 25% to 30% drop now? Here's the thing...
It doesn't seem likely, as AAPL stock has fallen almost 17% in just the past four weeks, even after gains in the past two days. The Apple price/earnings ratio is a low 12.67.
So any decline in AAPL from here should stay in a more modest range of 10% to 15%. That would drop the Apple stock price to somewhere between $93 and $99.
Frankly, even if that does happen, it won't be the end of the world. The long-term case for AAPL stock remains intact. Several of Money Morning's experts have steadfastly maintained a $200 price target on Apple stock throughout its decline over the past month. A lower AAPL stock price means a great company is on sale at a big discount.
And one more thing...
While the chart above clearly shows steep drops in the Apple stock price after the two previous death crosses, it also shows the huge gains that followed. AAPL stock enjoyed a seven-fold increase after it bottomed in early 2009 and has doubled since bottoming in 2013.
Follow me on Twitter @DavidGZeiler.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.