Tuesday, December 18, 2012

Apple Inc. (AAPL) Short-term Reversal


My prediction in my last post came true.  The micro short on the daily chart (left) traded to target. This  resulted in a slightly lower low with positive divergence of the RSI foreshadowing a short-term reversal.

How to take advantage of a  potential.reversal? Move to lower timeframe.  Look for:
  1.  Positive divergence of RSI to lower price.
  2. Wait for price to take out previous swing high.
  3. Wait for base to form - at least two relatively equal points form a base.  In this case AAPL touched 517 twice before retracing.
  4. Buy the ambush.
This setup has a very high success rate.  The success is measured on reaching the first target. The first target is the green dotted line -23.6% Fibonacci level.  Here we see that AAPL blew past 1st target very easily.  Now we are in the ambush zone of the next micro short.  Since the long traded 1st, and the setup was technically perfect, we expect the micro short to fail.

However, this still a counter-trend trade to take us back to the bigger setup at $605 which is an ambush short.

17 comments:

chin said...

Jamie,

Thanks for the updates on AAPL reversal. Could you please point me to the place where these charts can be viewed with a larger magnification.

So, the next ambush zone is the 38% to the 50% of the next move high up ?
Currently 528.22 is the level that we are at.

Thanks

Jamie said...

Try Jing screen cast for larger magnification http://screencast.com/t/qFtvTG3m

I am trailing AAPL stop from previous high 517 to 532.78. Next ambush 50% level is around 525.

chin said...

You are amazing.. with your skills, you must be making a decent ROI YOY.

Appreciate sharing all this with everyone.

Jamie said...

Thx Chin,

Happy to share.

timo4sho said...

Hi Jamie,

great analysis as usual. But where exactly did you enter this one? Usually, the ambush buy is between 50% and 61,8% retracement. Here price did not make it even to the 50% level. So where and why did you enter?

Thanks for clearing it up and a BIG thanks for sharing this setup. Do you solely trade this on AAPL?


Regards,

Tim

timo4sho said...

Do you still trade futures?

Jamie said...

Hi Timo,

I have refined the setup with experience. For long entries I like to front run the 50% level, because often times price just floats above it and never touches.

In this particular case, I front run by 1 pt. and still didn't get hit, so I had to chase a bit.

I use this setup on stocks and futures. It works on all timeframes. It works very well on oversold stocks on the daily timeframe. I have a few big swings in RIMM, APKT, and FSLR using this setup on the daily.

chin said...

Is it working today for you ? we formed the base at around 525 but we are still not breaking above the HOD...

Jamie said...

It is working perfectly. The first test of the micro ext. long was supported. We are still stuck in the micro ambush short zone. The bulls and bears are fighting for control. Need to see a close above 534.58 to confirm that bulls are firmly in control.

Latest screen shot http://screencast.com/t/OZ1eI4np

chin said...

So, you go long and short the stock during the day constantly.

You are probably flat for now having shorted to 525 and then sold the long from then on at 533 again ?

And you will go long once we break the previous high...


Jamie said...

Chin,

No, I am swing long. I have taken some profit off, but still holding more than half of my initial position. I do expect the micro short to break as indicated in my post.

chin said...

thank you.

chin said...

Well, we closed pretty bad today. Almost at day's lows..

AAPL was recovering well around 3:38pm but then started moving down. Does the setup work when the entire market is going down ?

Jamie said...

The setup works until it fails. Today we saw a nice run on the first test of ext. long. After that both sides played defense.

Neither side can win simply by playing defense, so we need to see some offense.

Does it work during corrections? Yes, I bought RIMM in October and it worked as the market went down. But RIMM was much more oversold than AAPL is.

chin said...

You have an amazing patience. Thanks for your response. We will wait and see what happens next. Hopefully this thing will hang in there. I plan to write some calls to hedge against any further decline.

john said...

The move from all time highs down to $505.75 retraced back int the ambush zone, but not to the 50% level. One might view this as strengthening the bear case. Have you found that not making it to the 50% results in more short set-up failures?

There is an ambush short trade that may develop right here (Thursday morning).

Thanks, always good to see you posting.

Jamie said...

Hi John,

I agree, stocks that only retrace 38% are stronger or weaker depending on the direction. But, I also find that the more technical instruments like ES always go to the 50% level. My thinking is that AAPL is one of the most technical stocks in the market, and so I expect it to retrace to the 50% on the short.

Yes, we have a daily short vs. a 15 min. long. Both sides have breached the 61.8 level, but not out yet.