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Want to Buy Apple Without Chasing? – Some Possible Entry Points (AAPL, SPY, QQQ)

February 15, 2012 Leave a comment

Since blowing out earnings expectations on January 24, Apple, Inc. (AAPL) has been on a tear, bringing the S&P 500 (SPY) and NASDAQ (QQQ) along for the ride. From the pre-earnings closing price of $420.50 on January 24th, to today’s intra-day high of $526.29, Apple had gained a stunning 25% in just 16 trading days.

Unfortunately, this quick run up has made it hard to begin a long position in the stock because of the complete lack of pullbacks other than the 50% long Fibonacci extension at $445 that traded during the first day after earnings (shown Here on a 90 day, hourly chart). The other issue with Apple’s recent move up past the $500 milestone is that it has attracted an enormous amount of momentum-oriented investors who have seen the move up that has already happened, and are now chasing high’s in hopes of catching some of the move. I can’t predict when the momentum will run out, but I can be reasonably sure that the momentum investors will dump the shares as quickly as they bought them once the upward trend begins to fade. Whether you are a value investor or technically-based trader, Price matters and that is why it is so important to remain calm, disciplined and patient when buying into even the highest quality of stocks.

The charts below show Apple’s 20 Year Weekly chart (logarithmic), 3 Year Daily chart (linear) and 90 Day Hourly chart and I will discuss potential entry points for each time frame. I also want to be clear before beginning that just because the safest entry points are below where Apple is currently trading, I am not at all recommending a short position and I personally would never consider it due to the high quality and debatable undervalued nature of the stock. If Apple is in trouble, the S&P 500 would likely also be in trouble and I’d much rather short SPY or by an inverse ETF.

AAPL 20 Year Weekly Chart (Logarithmic):

(Click for Larger Image)

You can see from this chart that Apple has sold off every time it ran into this resistance line going all the way back to 1994. This time might be different but it certainly warrants caution. So let’s take a look at some potentially safer entry points for longer time frame investors Here which zooms in to a 3 Year Weekly chart.  The safest play would be to wait for Apple to sell off down to the purple 50 week Simple Moving Average (SMA) which is currently at ~$379 and rising at a decent clip. For slightly move aggressive individuals, buying the 50% long at the green horizontal line at $445 or previous highs at $425 could work well and also coincide with the white 10 week SMA.

AAPL 3 Year Daily Chart (Linear):

(Click for Larger Image)

This chart demonstrates Apple’s tendency to have fast run ups, and then periods of prolonged consolidation (highlighted in grey) which offer long term investors the chance to buy on dips. Meanwhile the red declining trend lines have routinely served as a good signal to shorter term technical traders that a breakout was taking place. These breakouts have lasted between 2 and 5 months with the average duration being 2.7 months long. This most recent rally is approaching the average duration right now and has completely broken out of its 3 year rising channel that it had been trading in (shown Here). Given these indications that the stock is possibly overextended, it would be prudent to wait for a retracement into one of the 50% Fibonacci levels shown in the chart above (notice that the $445 support level is visible on both the weekly and daily charts).

AAPL 90 Day Hourly Chart:

(Click for Larger Image)

For short term technical traders, there are only really two other levels to pay attention to aside from the daily support levels (Shown by the red and dotted horizontal lines that start at the beginning of 2012). The first (and most aggressive)  entry is an extension long setup (an extension long is a Fibonacci drawn from a previous high to a new high after a significant thrusting move, as opposed to a traditional Fibonacci which is drawn from lows to high) at $490. This extension originates from the previous high set after the post-earnings gap up to the intra-day high that we hit today at $526. The next long setup is down at $479 and is just a few points away from the daily support level which could give it an extra boost. This second extension has is just the continuation of the original gap up extension long that traded the day after earnings at the $445 level.

In summary, potential buying areas on Apple are as follows (from least to most aggressive):
Weekly Entries:
50 Week SMA, $445, $425

Daily Entries:
$476, $445

Aggressive Entries:
$490, $479

Disclosure:
I am long shares of Apple, however, I did close out 1/3 of my position today to lock in profits at $498.33.

Technical Analysis: Update on the Euro

November 3, 2011 1 comment

In our last article regarding the Euro published on May 16, 2010, The Euro Breaks Long-Term Support: Watch Out for Short Covering, we warned that although the situation seemed dire and the Euro futures had just broken down through a multi-year low, it was not the time to get on the short-selling bandwagon. At the time, I was expecting at the least a moderate sized bounce but we ended up getting a lot more than a “bounce”.

At the time of the post, the most recent close on Euro futures was $1.2369 and over the course of the next 12 months, it staged an enormous 20%+ rally (with a very nice, easy-to-trade trend I might add) up to a interim high of $1.4925. Since then however, new worries regarding whether or not Greece would default (or if markdowns were accepted by bondholders, how much of a markdown) and rising yields on the sovereign debt the other PIIGS (Portugal, Ireland, Italy, Greece, Spain).

So now with the possibility of a Greek referendum on whether to stay in the Euro and the possibility that Prime Minister George Papandreou will be forced to resign, what are the charts saying about the direction of the Euro, and possibly the direction of markets in general? Let’s take a look below:

(Click here for a larger image)

This first chart is a basic long term trend line analysis reflecting the development of a VERY large wedge/pennant formation. Wedge patterns are indicative of uncertainty and a lack of conviction among investors and are not effective at predicting price movements (aside from trading the range) until they break up/down out of the pattern. The fact that the Euro has broken below and above the lines at certain points further illustrates the lack of conviction.

However, there is slightly more evidence indicating downward price pressure from where the Euro currently is for two reasons. 1.) The trend line from the June 2010 lows that had been acting as support was breached to the downside and the Euro has just finished retracing to touch it in what is possibly a “kiss of death”. 2.) As you can see on this zoomed in daily version of the same chart, there was strong resistance at the top of the wedge’s range so it would be completely normal for the Euro to retest the lows of the pattern again. The daily chart also shows that the Euro ran into resistance at the 150 and 200 day SMA lines (white).

Despite the bearish trend lines that I mentioned above, I currently have no position on the euro (I’ll explain why on the next chart). I would however become very bearish if it were to break down below $1.3020 because it would be a clear break of the wedge and would also be indicative of a head and shoulders pattern.

The reason I am not positioned short at the moment is shown on the next chart that uses Fibonacci retracement analysis.

(Click here for a larger image)

The graph shown above paints a slightly different picture. While it’s true that the 61.8% line was not penetrated in the short setup from the interim high at$1.4925 to the recent low at $1.3139, the long setup from the same recent low at $1.3139 to the recent high at $1.4243 also held. This situation mirrors the indecisiveness that was evident with the wedge pattern above. However, this chart leans more towards the bullish side because the two setups mentioned above in this paragraph are taking place within a much larger weekly long setup from the June 2010 lows to the interim high at $1.4925. The bigger the setup more more trustworthy it is and the trend is in place until it isn’t.

Based on the Fibonacci chart, my bias at the moment would be long but with a stop at $1.3560. If I got  stopped out, I would then wait for the next 50% retracement to get short. At that point, both the trend line and Fibonacci analysis would be pointing towards the bearish side so it would be more likely for the Euro to break through the weekly support. It’s also important to note that in the last six years, the Euro has never held a full half way back 50% long after breaking trend (as the Euro already did back in September).

In this case, we have the only area where the two indicators agree, is that the outlook is still mixed until the Euro breaks out of it’s current range so the best way to play this would probably just be being patient and waiting for the market to tell us the next move. I’ll try and give an update on this later when a trend materializes.

Disclosures:
No current Euro positions.

-MJB

The Euro Breaks Long-Term Support: Watch Out for Short Covering

May 16, 2010 1 comment

The Euro just broke four year lows over continuing fear over the Greece Sovereign debt crises and the related risks of contagion to Portugal, Spain, Ireland and the rest of the Euro zone.

While the situation is certainly bleak, a large majority of traders are currently short the Euro and you don’t want to sell lows. You can see from the chart below that we just hit a medium term short target and although its definitely possible that we could just keep going in an extension, it’s also very possible that we could see a near-term retracement to 1.26’s as shorts take profit in a crowded trade.

-MJB

(Click to Enlarge)