AAPL Trade Set-up

I've mentioned a few times that at this point I'm more interested in AAPL as a trading stock than a trend position and that's because it should have the choppy volatility that makes for nice , quick option trades, it certainly has the liquidity (what good is a theoretical gain if there's no offer to make it real ?) and at the present, it's in excellent position for a trade set-up and a nice swing move that I'd prefer to take advantage of using some leverage which means options or more specifically, PUTS.

I suspect that AAPL is in a topping process, this may be a smaller top that forms part of a larger top or it may be the top. Either way, it looks like a H&S top. Many of you know my rules of shorting a H&S top and the 3 places I will, the one I will not. The head which we may have just past, is the first place, it's the hardest to identify and it also takes the longest time to see a decent return, but it does offer the advantage of the best entry and the lowest risk. I'm not saying the head is the wrong place to short a stock, it's all relative to what kind of trader you are. For instance, if you don't mind waiting a bit longer for the maximum potential and value the better or best entry and lower/lowest risk over time, then this may be something you are interested in. If you want something almost as good, but with a little better timing and not as long of a wait for the maximum potential gains, then the right shoulder would be for you. If you value timing over all else, but still want a decent overall entry with reasonable risk, then the shakeout after the initial break of the H&S's neckline is the third and last place to enter. It all depends on what your time horizon for trades is, how much time you have to watch the market or perhaps how little time you have (and would rather something more on auto-pilot), etc. There's no wrong way to trade, it's finding what is right for you.

 This is the 6 hour long term AAPL divergence which appears to show a left shoulder and coming off the head right now, which is one of the nicest swing trades in a H&S top. We entered our last AAPL put position 5 days off the absolute high, other than the add-to replacing half the position closed down which was put back on 3/9 before closing it this Tuesday.

If you are more interested in a longer term trend position and entering near the head, than this post should provide the set up that will get you as close as possible, otherwise I'm looking at this from an options trade P.O.V.

 This is my custom cumulative volume in blue that I use just to make it easier to see the volume trend which is essential to identifying a real H&S top rather than a random price pattern which at this point is very important as the right shoulder or lower high has not giving you a strong probability of a H&S top.

In any case, volume should decline at rallies and increase at sell offs which is what you see above so whether you are looking at the options trade or the longer term trend trade, the volume suggests this is going down to the neckline (red trendline) and if we can enter on a slightly better price position (bounce), all the better.

 This 5 min chart is what I'm using because for our purposes, it's the divergence that matters, but I did want to show you the longer/stronger negative divegrence in to the head which you can't see when I zoom in on what's important to us right now (below).

Also at this point, you should be able to see the tell-tale "W" price pattern to the right at the white trendline.

 This is the 5 min chart zoomed in a bit coming off the top of the presumed head in the H&S top with 3C price/trend confirmation of the downtrend to this point.

At the white area you can see a 3C positive divegrence, again, it's very small compared to the large leading negative 5 min chart above, but that doesn't mean it won't work, it just means the probabilities highly favor the bounce failing which is the set-up for the options or really either trade.

At the yellow arrow I point out a head fake move that is in scale for the "W" base, just to make the point that the head fake concept is fractal and occurs in all timeframes and is one of the last things to happen before a price reversal making it an excellent entry area and timing indication.

The 3 min chart is a bit more detailed and I've identified the area in which the divergence first started. One of our 3C concepts is that price will surpass the area where the divergence first started so according to the concept which is based on real experience, "If" I entered AAPL long around the $124.80-$125 area when I first saw a positive divegrence, even if I knew it wasn't complete or ready to go, I could expect the eventual reversal and move to the upside to surpass this area and put my long position at a gain, the same applies for negative divergences.

We can also see the "W" price pattern and head fake/stop run move clearly here.

From a measured move perspective, the measured move would imply an AAPL bounce to the  $128+ area.

We'll be watching for intraday charts to go negative telling us there's good distribution in to the move and look for an entry somewhere in that area, I'd set price alerts as a reminder just in case if you're interested.

This should set up an entry around $128 with a target for the immediate trade down to close to $105, that's 20 points and with options with enough time, that's a nice trade set-up.