A Brief Look at Apple’s Stock Seasonality

Just like with any other sector, it is important to realize that Apple’s stock price trades in a very distinct and consistent seasonal trend. Apple tends to perform much better in the second half of the year than it does in the first half. This has been the case for nearly 10-years now.

What we usually see with Apple is the start of a major rally which generally begins sometime between the months of July and August, and which ends sometime in months of January or early February. We’ve seen this happen on so many occasions.

Believe it or not, every single year for the past eight (8) years, Apple has seen at least a 10% correction which all started sometime in early January or February. In fact, six of these major corrections begin January and two — including this year — began in February. Even more interesting is the fact that these corrections tend to end in either March or July.

So the seasonal pattern we tend to see with Apple is a huge second-half rally which begins sometime between May and July, and which almost always ends in January.

The chart below lays out all of the second-half rallies that we’ve seen over the past 8 years. With the exception of the financial crisis, Apple has seen at least a 48% move off-of the lows set sometime between the months of May and August. All of these rallies are considered as ending in January. 2011 is a Bullish Cross estimate for the second-half of the year.

Now compare this chart above to the one below. Notice that Apple hasn’t gone a solitary year without having a major correction — greater than 10% — that began in January or February. 2011: February; 2010: January; 2009: January; 2008: January; 2007: January; 2006: January; 2005 Feb; 2005 January.

This recent weakness in Apple shouldn’t surprise anyone. Apple generally tends to struggle in the first half of the year. In 2006, Apple saw a brutal 41.94% first-half correction that brought the stock down from a high of $86 to a low of $50 in July before it saw a near 100% move in the second-half of the year. In 2005, we saw the same thing. After a huge second-half 2004 rally, the stock topped at in February before undergoing a 27.13% correction that ended in May.

This recent correction in Apple should actually be viewed as good news to investors. Apple saw two of its biggest rallies off of the heels of two deep and protracted corrections. In 2005, after moving down 27.13% between the months of February and July, Apple saw a 160.95% second-half rally which brought it to the 2006 $86 highs. After correcting for 6-months for the first half of 2006 (-41.94%), Apple saw a 94.98% second-half rally which ended in January 2007.

This year seems to be one of those 2005/2006 type years. Though Apple’s fundamentals are impeccable and growing stronger by the day, and though Apple continues to trade a very cheaper valuation raising doubts in even the biggest bulls, the stock has basically undergone a similar 6-month correction. A case can be made that Apple is headed for one big-ass rally in the second half of the year.

That is if the general seasonal trend continues to hold as it has in the past. This should also teach every investor a very important lesson about January. Though January tends to be the crescendo of Apple’s bullishness, it is also the most deadly month of the year for its stock-price. In fact, there should be a new saying in town: “Sell in January and Stay Rich.” The table below lends credence to this new platitude:

Even without looking at where corrections or rallies begin and end, there is still a very interesting asymmetry in the seasonality. This chart below outlines how Apple has tended to perform between certain periods of time. Notice, that with the exception of the financial crisis and its corresponding recovery year, Apple tends to far outperform between the days of July 1 to December 31 than it does between January 1 and June 30.

These next two charts breakdown Apple’s quarterly seasonality, and a peak to trough analysis. As indicated in the first of these two charts, Apple’s third and fourth calendar quarters tend to be very favorable for its stock price. With the solitary exception coming in 2008, calendar Q3 — which starts next week — has produced gains of at least 15%. Seasonally speaking, calendar Q3 tends to be the strongest quarter of the year for Apple followed closely by calendar Q4 (Oct – Dec).

The second of these two charts outline every peak to trough of the last 6-years. What is very important to notice here is that Apple tends to eventually see some sort of major correction ahead of a big move up in its stock price. The stock isn’t always going to move in a straight vertical-line to $1,000 a share. It will move up significantly, and then see a major correction. These corrections tend to happen in January. If Apple is up 50% off of its $310 lows set last week, you can expect to see some major weakness to follow come January 2012.

So what if anything can we conclude from Apple’s seasonality regarding where the stock could be headed over the next 6-month period (second-half)? How does this impact the decision making process with respect to January 2012 call holders? First, as everyone already probably knows, past history doesn’t guarantee future performance.

Those betting that Apple would see fresh all time highs in the second half of 2008 were sorely disappointed when the stock lost 60% of its value in what was supposed to be the seasonally strongest period in the companies history. Even as late as August 2008, there were no obvious signs of a potential stock market crash even to seasoned financial analysts.

Ironically, on August 20, 2008 — just 1 month before Apple lost 50% of its value — Senior analyst Gene Munster at Piper Jaffray made the very same arguments I’m making above to CNBC’s Fast Money. He argued that technology stocks generally tend to outperform in the fall and winter months, and that Apple’s cheap valuation meant that it was time to buy the stock. You can see the video of Munster arguing seasonality a month before the peak of the financial crisis here.

Now I point this out for the simple reason that if the macro-economic environment continues to deteriorate in the second-half of the year despite the Federal Reserve’s outlook, seasonality isn’t going to matter. All that seasonality can tell us is that if we’re in a stable market environment where this recent brutal 8-week correction ends and if the economic outlook improves, that Apple will probably see a major rally in the second half.

Yet, I think it should be noted that the S&P 500 has never fallen for 5-straight weeks outside of a bear market. Generally, the maximum number of consecutive down weeks for the S&P 500 during bull market has been capped at 4. Even during last summer’s 20% correction off of the European debt crisis and the flash crash, we never had more than four consecutive down weeks. In this correction, we had 6 consecutive down weeks, a flat week followed by another down week. That is a very bearish 8-weeks of trading on the S&P.

14 Responses to A Brief Look at Apple’s Stock Seasonality

  1. hi Andy, for your last chart, for ‘Jan 09-Apr 10′, I think you mean ‘Jan 10-Apr 10′

  2. In the first chart, you show the second half 2011 rally as yielding a gain of 45%. I assume that’s an estimate, and it should probably clearly be marked as such.

  3. good stuff. 2nd chart (2nd-half rally), bar for 2005 is 106.95% instead of 160.95% (correct # in table).

    • Thanks. I’m going to update all of these errors. I was so dead tired last night when putting this together. It takes a lot longer than it looks to gather this data, find a good chart format and then going through the tedium of plugging in all of the numbers.

  4. Hi Andy, will you also be making a chart for price fluctuation around earnings announcement? Like 10 days prior to earning release day and 3 days after release day to give a perspective on how the stock reacts to anticipation and actual results? It would also give a more in depth view to the horrible January correction you are talking about? How people sell on the news despite great earnings results?

    • So I can do that very easily. Check the Apple Daily Commentary. I’ll throw up a chart that shows Apple around earnings. I’m not sure if I’ll create a chart — there are so many out there on this issue — but I have a stock chart annotated for Apple’s earnings.

  5. Pingback: The Daily Apple Commentary | Bullish Cross

  6. Andy,

    Congratulations to you and your wife. Amazing that you are able to still post with two newborns, your wife recovering and little sleep.

    With the price seasonality, what is your advice from January through June for long term shareholders ?

    • Long-term shareholders can simply sell call options against their position in the second half of the year. For those with a more trading bias, there’s a strong case to be made to take a more reserved stance on the company during the first half of the year. Especially if the stock has rallied huge in the previous 6-months.

      Like this action from February to today is not surprising. We’ve seen this before countless times as you can see from the charts.

  7. Andy,

    What do you suggest is the first half of the year then? Tight stops or buying puts, and at what prices? Like this past January, what would have been the ideal hedge?

    • That’s too complicated of a question to answer in a comment. Moreover, I’ll get into hedging strategies when it’s more timely. Like ahead of earnings etc. I think a good strategy is considering just selling the position right off of January earnings. That’s always one way to do it. Another method, is selling half. There are a lot of things one can do.

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