AAPL Update- Trade Ideas

Friday I closed AAPL, USO, IWM and XLF calls as I was expecting lower prices early this week as we have now, the idea was to add to certain positions or rather re-open them at lower prices, having taken the profits Friday there's no reason to sit through draw-down over several days when you can take the profit and re-open the positions at a better price. The AAPL Call was opened last Thursday and closed last Friday for a +19% 1-day gain. This is the "Hit and Run" tactics I said we'd have to engage in a couple of weeks ago due to severe chop and volatility.

So lets see where AAPL is now (the only open position currently is about a 1/3rd full size AAPL equity short which is at a profit of about +5%, I will be closing this position shortly).

First, we called out trouble in AAPL well before the +$700 targets, you'd do well to try to recall the sentiment among AAPL longs back then, "AAPL to $1,000", "AAPL will never go down", so on and so forth. The distribution was clear here for a long time and although it's difficult to see on a daily chart, a weekly chart stretching back to 2009 will show you the VERY parabolic move starting early 2012. In fact if you look at a longer chart that gives you visibility back to the 1980's-90's, you'll see AAPL's very parabolic move starting 2009. I never trust parabolic moves, they tend to end as badly on the second half as they were impressive on the first half, however the market is fractal in nature so a parabolic move on a 5 min chart will resolve on a 5 min chart, the same for a weekly. AAPL lost 40% or over 300 points in about 8 months, that goes to show you that greed is stronger than fear. AAPL also broke down in a chaotic way, there was a "He who sells first, sells best" attitude that is rarely seen except near the end of a top as the herd splits and fractures and the herd in this case is not retail, but hedge funds and other institutional money, they herd as well, many of you know why, I'll explain why later.

When Dan Loeb (The very successful manager of Third Point) disclosed his top 5 holdings and AAPL was there and then AAPL was gone, all the other hedgies panicked and all tried to fit through the same small door at once, this is how a stock like AAPL can lose nearly half of its value in 8 months, FEAR IS ALWAYS STRONGER THAN GREED.

However I think there's an intermediate trend change coming, this may be a large counter trend rally (we saw a smaller one recently) or it may materialize as a sub-inttermediate or intermediate trend. I may be off completely with regard to time and it may just be a very sharp snap back move, but whatever it is, I do believe it will sync up with the "Bear Trap / Bull Trap" expectations. AAPL's weighting on the NASDAQ 100 is nearly 20% or about the same as the bottom 50 (weighted)  NASDAQ 100 stocks combined, so it can certainly help the market bear trap/short squeeze if it fires off at the same time and I suspect it is being set up to do so, thus I'll be closing the partial core equity short position in AAPL on near term weakness.

 AAPL 10 min chart has gone from a curious negative divergence sending AAPL in to somewhat of a range at lower prices and has gone positive in that range, this immediately makes me suspect something you'll see below, especially with price looking the way it does.

On this 15 min chart AAPL has two head fake moves, they are stop runs, but stop runs are head fake moves. Notice they are not very deep, they don't have to be because traders put in their limit orders and every pro knows where they are, the limit orders are all that need to be hit and you can see by the volume, they were (stops).

If you look at the Price range, that first negative divergence above seems to have been to create this large triangle, usually they have 5 points of contact, we have 4 for sure and another two attempts, volume also looks right for a triangle like this.

 On a 3-day chart we see a capitulation area to the left on an exhaustion gap and large volume, then the second typical capitulation/head fake move that clears stops before any type of reversal starts.

Most traders think a move up on volume is smart money buying, they couldn't be more wrong, these stops that trigger huge volume are some of the best places for smart money to accumulate, traders just see price down and suspect everyone is selling, but there has to be a buyer for every sale, they never think of who is on the other side of the trade and for smart money that wants to buy low and needs a lot of volume/supply to fill their orders, these are gifts, but in fact they are gifts they give themselves, not random occurrences. You then see a move up and a triangle, AAPL is widely watched and I'm sure I'm not the only one who sees this triangle. While it's too big in my view to be a real consolidation/bullish continuation pattern, that is clearly the image Wall Street is trying to convey.

If we look at the 3C chart of AAPL, those last two stop runs were under support of $434.05, where do you think most traders put their stops with support at $434.05? The mind is drawn to whole numbers so the stops are triggered on a break of $434, this is why the move need not be deep and when you put in a limit order, it's on the books and all of Wall St. can see where your "Uncle" point is, this is why I never use orders on the books, they only go out when I'm ready to make a move, would you show your opponents your cards in a game of poker? Why traders never learn is beyond me, but it makes our lives a lot easier as it does for Wall St.

Look what happened at those stop runs on the 3 min chart which shows more detail, they were accumulated so the retail stop run on larger volume was accumulated just as they usually are.

The 5 min chart shows the same thing at the same places, this is the first institutional time frame.

The larger 30 min chart shows where the triangle is and a clear pattern of accumulation, retail will buy an upside breakout from a large triangle and with Wall Street already long, they'll gladly be selling to retail as they chase prices higher.

The 4 hour chart in AAPL (although my 3C history is cut off), shows a clear inverse H&S price pattern, I haven't confirmed volume, but I don't need to with the positive divegrence, retail traders will see this too so I suspect AAPL is in for quite a strong move to the upside.

 The daily chart (the strongest signal of all the charts above, is still leading negative, meaning the most likely outcome as of now is a strong move up in AAPL followed by the resumption of the move down, however we'll cross that bridge when we get to it as much can change over that period of time.

If that did happen though, we'd have a typical Bear market Counter Trend rally, these are some of the strongest rallies you'll ever see.

If I have to guess at a target, I'd guess at least a 50% retrace, probably more.

This brings us right back to the triangle, I'd say it is VERY likely that there's a head fake move that breaks below the triangle which would be in line with out shorter term trend expectations for the market, this is the head fake move we see before 80+% of reversals, it will allow Wall Street to accumulate stops and more importantly will use the new shorts as fuel to power an upside move on a short squeeze.

It is my belief that not only will an AAPL downside head fake move below the triangle match up with our current market expectations, but the reversal to the upside in AAPL will occur at the same time the market bear trap/ short squeeze occurs and AAPL's nearly 20% weight will help lift the NASDAQ 100.

Make trading plans accordingly. For an AAPL long trade in at least the swing timeframe, I'd wait for a head fake break down first. To cover current AAPL shorts I'd do it on the same move to the downside.