AAPL Update

Last Thursday we saw something in AAPL, AAPL May Be Setting Up a Head Fake Long/Bounce, it turns out the sharp "V shaped break of support levels triggering stops was indeed exactly that. different people have different risk levels, some will take a trade like AAPL where it was last Thursday and run with probabilities. Personally I like to stick with high probabilities/low risk which is like saying if the probabilities are 70% for a move to occur, I want probabilities as close to 90% and the one thing that holds the probabilities down is a "V" shaped bottom. Yes, we can rally off "V" shaped bottoms and often do although this is more of a reversal event than a reversal process and the difference there is the probabilities. Think of the base/bottom as a foundation for building higher, what is more stable, a foundation with 1 point of contact and not much work put in to it or a wider , flatter base with more time and work put in to it, that's exactly how I look at bottom's/bases.

It's not the probability of a bounce that I'm concerned about with a "V" shaped bottom, it's the probability that the bounce ends suddenly with little warning, like waking up one morning to a huge gap down that wiped out a week of gains, a "V" shaped bottom is just much more probable to end in that kind of outcome than a more predictable outcome. No matter what the bounce probability is off a "V" shaped bottom or a wider "W" or "U" shaped, the probability of being able to keep the gains you racked up is the real issue with a reversal event vs. a reversal process.

Here are the AAPL charts in several timeframes since last week's head fake/long bounce.

 This daily chart of AAPL shows a change in character from a stage 2 mark-up or rally to a flat/lateral stage 3 top and a bullish-looking Ascending triangle, but in reality triangles this big are not consolidation continuation price patterns, but most often tops or bottoms depending on the preceding trend.

 This is a closer look at the daily AAPL chart with a head fake break down below long term support, note the volume rise as stops are hit and we hit a short term selling climax or short term capitulation.

From here AAPL made a "V" bottom which is why I wasn't interested in trading it. It's not because of the probabilities of a bounce, it's about the probabilities of the reliability of that bounce. Making a decent gain doesn't mean anything if you can't hold on to it and these "V" shaped reversal events haven't put in the time or the structure to be more predictable which leaves you more exposed to the possibility of one of those rogue gaps down in which week/s of gains are wiped out in one morning, look back to 2008 and you'll see a lot of those.

 As far as effective head fake targets since AAPL broke its long term uptrend line, one of the first targets would be a move back inside the triangle around area #1. An even more impressive move would be above the next decent resistance area around #2 and finally a head fake breakout of the triangle at #3, this is the least likely, but the most effective head fake move from here. Just as I said yesterday that the SPX would really need to break above its 50-dma to make this a worthwhile bounce and the kind of counter trend bounce we have come to expect, AAPL would have to make some similar stronger moves to get retail believing in the stock and that's the point of counter trend moves.

 This is AAPL's 60 min chart showing the last significant distribution area and the last significant accumulation=n area in which all of those stops (volume) were accumulated at the sharp parabolic like "V" bottom. From here, we go back to the earliest charts as any new divergence such as distribution in to higher prices will start on the shortest timeframe charts and work its way out to longer ones as the divergence builds/progresses.

 To give you a feel for the big picture, many of you may remember our AAPL short call in 2012 and then the rapid decline of -45% in 8 months as Third Point's Dan Loeb had sold all AAPL. Some much larger funds have closed out ALL of their AAPL positions since then, but now the daily 3C chart has not repaired or confirmed the recovery off the Dan Loeb sell-off lows so the highest probability 3C resolution for AAPL on a primary trend's scale is clearly pointing down.

 At the 3 min chart the "V" shaped bottom is to the left with a white hash mark. Like most everything we saw yesterday, it too was showing a negative divergence in to higher prices.

 This is the AAPL 5 min chart which shows the positive divergence at the "V" lows where a lot of stops were taken out and the recent leading negative divergence developing further. These need to keep developing and keep migrating through higher timeframes.

And now we are just getting in to the 10 min timeframe for AAPL.

AAPL is clearly not a short set-up here, but it looks to be very clearly moving in that direction. I'd definitely like to see AAPL well inside the triangle and see retail chasing price higher in giddy fashion, that's the same thing Wall Street is looking for and the reason this bounce was called a RISK OFF bounce over a week ago.

AAPL is on the watch list, as far as timing, that depends on how fast the charts migrate. I'm still thinking toward the end of the week, but those "V" shaped bottoms can be unpredictable so once we have a bit more damage, I may, for the first time in a VERY long time, consider phasing in to an AAPL short position and I probably don't need to tell you what a down turn in AAPL means for the broader market.