Trading Apple and Google: They Should Call It Winning

A basic rule of technical analysis is that as long as a stock trades above its 50-day moving average (DMA), it is in an uptrend. When a stock trades above that level it should be bought, and when it breaks down below the 50-DMA, investors should consider exiting their long positions. Based on this metric, if you are long Apple Computer (AAPL) or Google (GOOG), you haven't even considered selling them in a long time.

In the charts below, we highlight streaks in each stock where they traded without closing below their 50-day moving average. For AAPL, the stock is within five trading days of breaking its July 1986 record for most consecutive days above its 50-day moving average (186 days). GOOG is already trading into record territory for its longest streak above its 50-day moving average at 96 days (and counting), although here we would note that the stock has only been public since 2004.

AAPL is currently trading $10 above its 50-DMA (5.2%), so a couple of bad days in a row could put an end to that streak at anytime. For GOOG, however, the stock is trading more than $50 above its 50-DMA (9.5%), so here it's a likely bet that that stock's streak will hit the triple digit mark. While many are still hesitant to call the rally off the March lows a bull market, these two stocks have sure been in bull mode.

click to enlarge

Comments

[GSlusher]

Why 50-day? Why not 48, 52, 39, or 118? Is there hard evidence that this works, or, like most "technical" methodologies, is it mostly urban legend?

FWIW, a few chosen (i.e., "cherry-picked") examples aren't evidence. Apply this to 1,000 stocks and 8-10 randomly-chosen periods for each stock. (That would be easy to do with a good database and cleverl software.) If it works no more than about 50% of the time, it's useless, as a coin toss would be right 50% of the time.

2009 Nov 25 05:50 PM

[Fibozachi]

... using the "50 day moving average" is a guideline, NOT a rule. Moreover, you are referencing the SIMPLE moving average (SMA), without mentioning such; and there is NO such thing as a DMA, it ought be labeled "daily xx SMA."

The SMA is just that, simple. It is THE least accurate, least robust moving average methodology available today and pales in quantifiable comparison to the EMA, DEMA, TEMA, WMA, TMA, HMA, GMA, innumerable AMAs, and the king of them all the JMA.

www.fibozachi.com/nons...

Love your technically-oriented fundamental analysis and only ask that when you guys do reference a technical methodology that you fully disclose exactly what it is you are looking at. Otherwise, the already murky waters of TA are only further muddied.

2009 Nov 25 07:28 PM