AAPL Up against overbought conditions and trend support
The market is rocking, the S&P has been up 6 out of the last seven days, Apple has shot through to new highs, economic conditions around the world seem to be improving, etc, etc, etc. This is exactly why I am now thinking it’s time to take profits and wait to see what opportunities the next pullback will provide. While I still believe the market will grind higher over time, perhaps all the way through the summer, I also believe it needs a breather to get the muster to advance through this next significant level.
Buy the Anticipation, Sell the Delivery
About a week back there was a rumor that the iPad would be delayed. Well now it appears that rumor holds some truth in it, in so far as a world-wide delivery is concerned. What’s not so clear is the reason for the delay, some reports say it’s hardware, others say it’s the OS, others say it’s last minute decisions by Stevo himself, expressing dissatisfaction with certain Apple-branded widgets, like Calculator, Stocks and Weather, that simply don’t look good enough at double size. So initial versions may not come with those stalwart utilities.
In any event, if you’re a long-time investor or trader of Apple stock, then you know there’s a pattern that plays out with every new product introduction. That pattern is intense hype and anticipation, causing the stock to rise, followed by a big sell-off once the product actually hits the streets. Why should this be any different? That’s a rhetorical question, by the way. And just for the record, AAPL has played out it’s near-term bullish pattern and is up against trend resistance, besides being extremely overbought. Apple finished the day at 219.08 up slightly +0.13 (0.06%) and currently down a healthy amount in the pre-market .
Conclusion
So, the way to play the market here is to take your profits, let the market pull back and work off those overbought indicators. Let it find support, which would be 1115-1118 on the S&P, 2250 for the NASDAQ, and 211.50 for AAPL. See if things have unwound sufficiently and start looking for good entries in your watch list picks.
Apple continues to use the word magical, and it’s starting to bug me. Sure the device is revolutionary in so much as everyone is going to scrap their earlier attempts as non-starters and start to follow the Apple lead. This will put all the major competitors at a 1-2 year disadvantage. But that’s NOT MAGIC, that’s Apple!
I teach market technical analysis, and I often emphasize how important it is to look at all the indicators, analyze all the timeframes in relation to one another, and for god’s sake make sure you have confirmation on patterns before you make a decision. Then I read the following little diddy and it made me sit back and think. Check it out… [read more…]
Every day the market is open there’s a Market Open broadcast where we look at the trading day to come. Topics covered can include technical analysis for the day, economic report analysis, news, rumors and speculative plays and stock setups. [read more…]
Breakout from Handle spring boarding off the 20/50 day EMAs (click to enlarge)
Yesterday’s economic reports all came within expected ranges, some over, some under… so that’s not a problem. Next, we gapped up yesterday, launching off those 20/50 day moving averages, so that’s even better. And we’re building momentum now, with the MACDs on all the major indexes showing a cross over the zero line. Yes! This was a critical move by the Bulls and it was done on pretty good, not utterly fantastic, yet definitely not anemic, volume. When you start a leg up with a gap, that’s a good sign. Now we want to see steady progression through that next level of resistance before taking any significant breather. For the S&P that next obstacle is 1115.
NASDAQ Cup and Handle Breakout
The Nasdaq is in much better shape, as would be expected on a wave three leg up. It’s breaking out of a cup and handle formation, a well recognized bullish pattern. And doing so using the 20/50 day EMA as a spring board. See the chart above.
Our Apple Long call is doing fantastic! We have three huge white candles and the daily charts are completely overbought, evidenced by the RSI, which has plenty of room to grow. The Stochastic can stay overbought for extended periods during a bull run, so we’ll be watching for the time when the RSI catches up with it. Apple finished the day very strong at 208.99 up +4.37 (2.14%). The premarket is down, but that’s to be expected with the near term oscillators getting very overbought. That can be cleared through intra-day action.
Conclusion
With Apple and tech leading the way, we need the financials to cowboy up so that we can clear that 1115 level and make a goo at the top of the trading range 1150. The next level of resistance comes into play at 1132. Apple is currently at it’s next challenge from 209 to 210. Should we push through there our target of 215 will be well within grasp! Don’t get frustrated, as Apple is ahead of the pack, it’s overbought, and this next level is going to be tough.
The start of March should prove to be the start of a new leg up for the markets as well as Apple (AAPL). In my view, AAPL is an excellent risk to reward buy anywhere between 204.50 and 206. If the economic reports this morning (Monday March 1) are fair to good, we should see a new leg up for AAPL and a target of 215, with a stop at 198. I love green apples! Apple finished the month of February in the green by 6.54% and Friday it finished the last trading day of February strong at 204.62 up +2.62 (1.30%).
Conclusion
The near to mid term outlook for the broader market is better than the outlook for Apple. I believe Apple has downside pressure longer term, but should it clear the recent highs of 215, it may have a chance to break that outlook. So near term, Apple is a buy right up to those highs, where we should be taking some off the table, locking in those profits. Should we break that 215 barrier, then we’ll reevaluate further longs.
