Investor Alert

New York Markets Close in:

Market Sentiment (Stocks on NYSE, NASDAQ, AMEX)

May 7, 2012, 9:33 a.m. EDT

Apple: A bearish “one-day wonder”

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Apple Inc. (AAPL)

or Cancel Already have a watchlist? Log In

About Alexander Elder & Kerry Lovvorn

Dr. Alexander Elder is a private trader and a teacher of traders, based in New York City. He is the author of several international best-sellers, including "Trading for a Living" (1996) and "Come into My Trading Room" (Barron’s 2002 Book of the Year). Dr. Elder runs world-famous Traders’ Camps and is the founder of SpikeTrade.com, a Web site for traders.

Kerry Lovvorn is a trader and a trading coach, whose work has been featured in several books. He teaches advanced trading classes and is a co-author of an e-book "The New High – New Low Index." Kerry is a co-director of SpikeTrade.com, responsible for the nightly market analysis and a trading plan for the following day.

Together, Dr. Alexander Elder and Kerry Lovvorn run SpikeTrade – a unique club where serious traders compete for prizes and share ideas. They can be reached at info@SpikeTrade.com.

/conga/trading-deck/bios/elder_lovvorn.html 196072
The trading deck is powered by

By Dr. Alexander Elder and Kerry Lovvorn

Apple has gapped up following its earnings report. Its relentless decline following that knee-jerk rally points to lower prices ahead.

This is our third post on Apple /zigman2/quotes/202934861/composite AAPL -0.82%  in the Trading Deck series. On April 12 we published "Parabolic move makes Apple a short." On the day it closed near $623 we wrote: "A parabolic rally marks the terminal stage of a bullish trend. Every rally in history that went parabolic ended in a drastic drop."

On April 23 we published an update "Apple dip not done yet. Next stop $500." While the stock closed near $572 prior to earnings release, we wrote: "Shorting AAPL is no simple matter, and it's certainly not a game for beginners. On a day when AAPL rallies $20, holding a short feels like being strapped into a fighting chair on a fishing boat, with an 800-pound marlin at the end of the line. Before you put on a trade, think of what size you would be able to hold on such a day."

Never underestimate market's ability to overshoot reasonable expectations. Apple gapped up $50 following its earnings report. The crowds cheered, but AAPL closed lower than it opened on the day of its gap and has been sinking ever since. Since it is now trading below the level at which we published our latest update, it is a good time to review our technical signals.

We use technical analysis because we believe that market prices reflect all current actionable information. We use chart and indicator patterns to calculate the odds of rises and declines.

We use weekly charts to make our strategic decisions. When AAPL broke above its upper channel line (red arrow), it alerted us to its parabolic behavior. A slow 26-week moving average (the orange line) represents a long-term consensus of value among masses of traders. It shows a well-established pattern: AAPL keeps rallying away from value and then returning to it, in areas marked with green arrows.

If you think that the trend of AAPL is still bullish, it is reasonable to expect another pullback to the value line. That line was at a $513 last Friday, as marked here with a blue arrow. On the other hand, if you think that the parabolic rise in AAPL has been broken and a bearish trend has began, we have a much lower target.

Whether you're a bull or a bear, the current pattern of AAPL reconfirms our first target of $500. We will re-evaluate AAPL and set our next target in another update when it approaches that level.

Disclosure: Dr. Elder is short AAPL.

US : U.S.: Nasdaq
$ 163.16
-1.35 -0.82%
Volume: 90.07M
Jan. 21, 2022 3:16p
P/E Ratio
Dividend Yield
Market Cap
$2687.17 billion
Rev. per Employee

Page 1
This Story has 0 Comments
Be the first to comment
More News In
Trading Deck

Story Conversation

Commenting FAQs »

Like & Follow The Trading Deck

/conga/commentary/columnist-competition/looking.html 234011

Partner Center

Link to MarketWatch's Slice.