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Why AAPL looks ready to bounce

11/1/2012 3:11:17 PM | Chris Vermeulen

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Apple really has helped in holding the overall stock market up in the past. But recently, the stock has been a big drag on the broad market.

Apple Inc. (NASDAQ: AAPL, Stock Forum) shares have been in free fall mode throughout October, spooking investors with a $120 drop from the all-time high in September. As we all know, though, it’s hard to follow without a proven trading strategy to keep us focused. But the key is that you must buy when others are selling and then sell when everyone is buying.

Apple really has helped in holding the overall stock market up in the past. But recently, the stock has been a big drag on the broad market. Taking a look at the chart below, you can see my analysis and thoughts of this giant.

The red horizontal line shows the key level where high volume traded in the past. For the market to reset (flush out investors/traders) it must shake as many longs out before it can start rising again. By the price breaking below that level which also happens to be a Century Number $600, most of the stops were placed down around this level.

The volume spike of 40,000,000 shares clearly shows it triggered stops once that $600 level was broken. We want stops run because it gives more power to the next rally/bounce.

NASDAQ Index:

The NASDAQ has formed a similar chart pattern and is heavily weighted with AAPL shares. Trading NQ futures, PowerShares QQQ Trust Series 1 (NASDAQ: QQQ, Stock Forum) ProShares Ultra QQQ (NYSE: QLD, Stock Forum) or the Select Sector SPDR-Technology (NYSE: XLK, Stock Forum) exchange traded fund is a much more affordable way to play a bounce/rally in the coming weeks.

Russell 2000 Index:

I really like the Russell 2000 index because small cap stocks can rally hard and fast, outperforming the large caps like AAPL, SP500, NASDAQ and DOW. This index is looking ripe for a bounce in the coming days, which could trigger the next major rally to new highs. You can plan this index through TF futures contract, iShares Trust Russell 2000 Index Fund (NYSE: IWM, Stock Forum), Direxion Daily Small Cap Bull 3X Shares (NYSE: TNA, Stock Forum) exchange traded funds.

Trading Conclusion:

While this setup looks very promising because the election is almost over and the Santa Claus rally is just around the corner, know that some of the biggest drops in the market happen during times when the market is running the stops. It is a natural tendency to take big positions when things look great, but that is not how you do it. Take calculated position sizes knowing indexes could fall another 2-3% before putting in a real washout bottom.

ABOUT THE AUTHOR

Chris Vermeulen

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. For six years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.

Reach Chris at: Chris@TheGoldAndOilGuy.com

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

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