(Last March – May 2012)
The chart you see above is from last March through May. As you can see that we had very slight bearish divergences on all three indicators after huge bullish rally. But that’s all it took for $AAPL to lose 110 points in few months!
But the shocking thing about today is that we have more definitely CLEAR and confirmed bearish divergences on all three indicators (stochastic, RSI and MACD). Let’s take a look.
After a huge bullish rally we had for about few months, today we CONFIRMED bearish divergence on all three indicators. (RSI has been confirmed for several days already).
Stoch and MACD just started roll over today thus confirming this divergence. Bearish Divergences are probably the MOST STRONGEST and IMMEDIATE REVERSAL SIGNAL/WARNING out of all other reversals that we identify in any technical analysis.
Many times bearish divergence plays out pretty quickly after it has been confirmed.
But here that could fuel this argument for further discussion is this.. And this could be very very serious.
On weekly chart we have even MORE STRONGER bearish divergence shaping up on MACD. RSI has been confirmed. but MACD has not been confirmed because that fast line (blue) is just starting to roll over. And when it does roll over crossing the red line then weekly bearish divergence is confirmed.
This is where we might be thinking about HUGE BEARISH DROP OUT. I mean all hell can break lose here.
Does it have to play out? No nothing HAS TO PLAY OUT in the market. We could have divergence and nothing could happen but that chance is not high. It has very high probability that this divergence will play out because we have it on both daily and weekly chart. And let me warn you that this does not happen very often (daily and weekly divergences coinciding each other)
Around $670 is my bearish trigger because $670 is short-term support from the gap 9/12. If we can break that and continue bearish, I want to get in it.
$640, $620, $580 are my targets.
Make sure to watch out the uptrend fan line (red) which that’s going to act as very strong support.
If that weekly divergence plays out, I would say we can get down to $570-$580 area.
It’s still premature to say that we are going to tank because nothing has been confirmed except the fact that we are bearish divergence. I’ve seen these divergence do not play out but i’ve seen way more that they do play out.
So this is definitely a huge warning that I wouldn’t ignore. If you have bullish positions, I would at least tighten the stop.
9/26 Wednesday – Entered Bearish @ $670.71
Triggered bearish this morning. Closed with a spinning top candle today and its not bad at all because earlier today we almost had a hammer at support and I didn’t want that.
Next support coming up at around $655.
Targets = $640, $620, $580.
We got a massive bearish divergence that is confirming each day on weekly chart and just looking at the chart patterns and candle pattern this month, lots of hesitation moves.
I think last few months trading was nothing but just one big hype that has been created by people who are too optimistic about this stock and iphone 5.
Earnings 10/23 which is not confirmed so IMO I’ve got enough time to work it.
-Another Bearish Reversal Signal
As long as that top gap does not get filled anytime soon, we are looking at Bearish Island Reversal pattern.
I’ve been seeing lot of this recently and this is one of the strongest reversal signal especially when it happens after a long rally like we had last few months. Very very bearish right now on $AAPL according my analysis.
OK so today we had this HUGE Bullish candle right at support! $AAPL is truly amazing to have bullish day with all kinds of bearish reversal signals up top.
Today we closed with what we call Bullish Engulfing pattern. It’s one of the stronger reversal pattern and if you put last three candles together, you get Bullish Piercing pattern which is also a reversal pattern.
So now we have conflicts against each other.
Up top we have Bearish Island Reversal (The STRONGEST reversal signal in candle stick patterns).
And we got Bearish Divergence on MACD, RSI and tiny bit on STOCH.
So here is what comes down to:
Fundamentalists are very bullish on $AAPL plus some technical analyst would say its bullish seeing the Bullish Engulfing pattern at support today
Pure Technical Analyst would say it’s bearish because we have the strongest bearish reversal up top (The Island Reversal) also one of the CRUCIAL reversal signal of Bearish Divergence in the picture along with it. Weekly divergence on MACD is almost confirmed. and Evening Star reversal is forming on weekly as well.
So this is going to be very interesting how its going to play out tomorrow. All I need for $AAPL to do tomorrow is close with a small spinning top just below gap support/resistance area. Then on Monday, we can think about heading south…
-Added More Bearish Positions @ $660.40
Targets – $640, $620, $580
This is WEEKLY CHART.
-Bearish divergence is confirmed, Evening Star Reversal is testing.
-If this $656 support is broken, next stop is at $580.
Last hope for bulls.
If this 50EMA is broken this week, we are heading down for 100SMA which at around $614 area.
10/5 Friday Morning
– Forming Right Shoulder with Bearish Flag
Well this is a classic and textbook bearish flag pattern (last three days).
You can confirm this with the volume. If this was a bullish run, you would see either consistent or increasing volume action however we have decreasing volume (last three days) while the stock rose.
That’s how you detect resting patterns, continuation pattern, flag patterns, pennant (any short-term slow down pattern) with volume that shows a divergence.
I think we are going to test that $655 again to see if it’s going to hold. That’s the neckline and for bears, we NEED to close below $655 with good looking bearish candle.
After Close – 50 EMA Broken
– Around $620 (100 SMA) my next target
-Last April we broke 50 EMA an we got down to 100 SMA in about two weeks. I am assuming that it will follow this time as well.
$640, $620 Next Two Targets
-$620 is where it coincides with 100 SMA so very very strong support. I might pull out with my puts at the point if it doesn’t push through quickly when it gets there.
Weekly Reversals Confirming
-Weekly Evening-Star bearish reversal is starting confirm more an more everyday.
-Weekly Bearish Divergence is now confirmed on all three indicators. (EXTREMELY BEARISH because we also have daily divergence which played out at the top)
-$620 and $580 next two longer-term support if or when it this thing actually start to tank.
*I am just assuming these scenarios looking at my technical analysis that this could possibly happen – It may not happen this way*
-Next week, we are going to have another decent bearish day thus forming a Three Black Crows right down to $640 support.
-We are going to test that $640 as a support and bounce to test that $655 area (neckline) as new resistance. We might camp here for a short while and then if that neckline holds true as new resistance, we are going to tank down to $620 area.
-$620 is going to be very very SOLID support which it’s going to be tough to break because it coincides with 100SMA. If you look at your chart, you can see that 100SMA doesn’t break easily. Last time we completely broke 100 SMA was back in Nov. 2011. (Late July 2012 don’t count because we dipped lower but came right back up).
-Depending on how close we get to the earnings before all of this plays out, I will probably exit at around $620 with my puts.
10/8 Monday (1:50pm CT)
– HnS Pattern is Confirmed
-Now we can finally say that Head and Shoulder reversal pattern is confirmed and with the gap down this morning, we might be looking at a continuation gap if it doesn’t get filled this week.
-Usually gaps have three phases. Breakaway, Continuation and Exhaustion so if this continuation gap is confirmed, well we have so much bearish signals it’s not even a joke.
Let me list all of those signals for you. *BEARISH SIGNALS
- Island Reversal (strongest reversal pattern) at the top
- Breakaway gap at the top
- Daily Divergence on all 3 oscillators
- Weekly Divergence on all 3 oscillators
- Weekly Evening Star reversal at the top
- 50EMA has been broken
- Head and Shoulder is now confirmed
- Now with this continuation gap possibly forming? looking pretty ugly for bulls.
So where is the bottom? Where is this beast heading to?
First let me point out that $640 is going to be acting as pretty solid support. It doesn’t mean that we are going to reverse completely and head to $700 but it means that we might see some retracement or a pull back to the right shoulder neckline ($650-$655).
So if or when this $640 support is able to hold this week, I do think that $AAPL is going to want to test that $650-$655 area as new resistance. And after testing it for several days if it holds true then it is going to roll over to 100 SMA very fast which is at around $620.
And if or when $620 (100SMA) is broken, we are heading down to $580 level which is very strong pivot area which that coincides with 200 SMA.
Personally I will probably close out of most of my puts at $620 level and and see if 100SMA is going to hold. I do think in the worst case scenario would be 200 SMA at around $580 level but I don’t think we are going go any lower than that. That would be a ultimate worst case scenario IMO.
10/9 Tuesday (9:20am CT)
– Closed out 70% of my Puts at $628.99
-Rest I am riding it to $620 and possibly even below.
-Current stop is at $650 for that (just above the gap two days ago).
(10:01am CT) – I am completely out @ $626.00
-Around $670 I got in with some puts so its about $46 move downside. Very good.
-Here are my concerns. When stock drops this fast, the retracement and the pull back is that much faster and harder. This is why you have to be very careful when stock falls this fast and this hard. It can really burn you which I have experiences in the past.
-Don’t get me wrong, I do like fast moving stocks because the profits are that much faster however I actually like it more when stock moves consistently in good paste of speed because than you can pinpoint the reversals and slow downs.
-When stock falls this fast, it can whipsaw just in an hour just like that. Something like $AAPL it can go from $620 to $640 in matter of minutes.
-So… well good luck to all shorts and puts but I am completely out of my bearish positions and very very satisfied with ROI.
– Back in the Bearish Game @ $640
(10:45am CT update)
-Ok so about an hour and half ago I got back in this trade with some bearish position after seeing some bearish flag pattern happening. Entered with puts at $640.
-Just looking at this chart I can pin point several huge affirmation for bears of why it’s going to continue bearish and the targets are $620 and $590-$580.
-GAPS = We had a break away gap (formation was Island Reversal) at the top 9/24 and we traded down and we had another gap which is called continuation gap 10/08 as long as it stays open. I really thought today we were going to fill it and test that right shoulder as new resistance but didn’t happen. Continuation gap resistance held and it’s tanking now.
-Continuation gap = If this continues to stay open, it adds that much more weight to bearish argument. This could be used as a measurement of where we at in this bearish move. You could say that we are in the middle of the bearish move looking at this continuation gap. If this holds true, it means $580 isn’t a preposterous target but a reasonable target.
-Reversal formations (*Only if we stay this way until close so the analysis is premature*)
- Bearish flag = stock rose but volume declined. We saw same thing happening back in 10/2
- Bearish Engulfing = very strong reversal signal especially when it happens at resistance
- Falling Two’s = 4 days ago, it traded down, then last two days it kind of traded up slowly and today it tanked. That’s falling two bearish continuation pattern.
*Again these reversal formations are premature because we do NOT know yet what could happen since we still have long day to go. But if we are to close in this setting, that’s how I would analyze it.
Why $620 Price Point is VERY CRITICAL
(1:14pm CT update)
-100 SMA and Fib. Retracement 61.8% coinciding and also we hammered it out few days ago. This price point of $620 will act as strong support. It’s going to definitely slow things down. However this is very critical that we understand the Fib. Retracement zone.
-In the event that we break the Fib. Retracement zone of 61.8%, we can now confidently say that until we get to next support (200 SMA or $570-$580 area) bears has completely taken this over.
-If 61.8% broken, this thing will go down to 100% retracement level.
-Here you can see that bears are gaining lots of momentum here. 100 SMA is the last hope for bulls but it might be a heavy load since its falling from up high.
-You know what the differences with 100SMA (blue) in Oct (today) and back in June or July? Today we are talking about 100 price point drop from the top to the 100SMA level. Back in June and July it was like $30 drop. Bears barely had momentum built up when it reached 100 SMA so bulls were able to bounce easily. But now is completely different story.
Can you imagine falling from 10 story high building and falling from 2 story high building. You can probably live falling from 2 story high building but from 10 story high building? You will break your legs say the least. So currently we are falling from about 100 price point and bears have been building lots of momentum in that process.
10/14 Sunday – $590-$580 is My Next Target (b4 ER)
We might or might not fill the gap of $650 but as long as that right shoulder resistance holds true as resistance, very likely we are going to have another bearish run to $580. We might not even go up to $650 level but just hang around and fizzle around that 100SMA / 61.6% fib. retracement zone (which that will give some rest to the oscillators) until it breaks it and tank. Oscillator analysis below to explain further.
You can see it here last March through May. We broke $61.8% retracement level and this thing tanked to 100% level just in 4 days! I am telling you that 61.8% retracement level is the last draw for the bulls. We break that bears are going to push it until it gets to the floor and in our case today the floor is at around $580 level.
And it’s very critical that you understand this that we are approaching 61.8% retracement level today so keep an eye on that thing, if it breaches, here comes $580.
Why do I think we are going to have short-term bullish pull back? Because of the oscillators. They are in extremely oversold conditions and if you look at the chart further out, they don’t stay go any lower. So $AAPL will need to rest those oscillators before continuing bearish.
Why? This is why
– Added More Puts Before Close @ $646.43
Well today we tried to breach the neckline resistance and got rejected. This does not gives me any confirmation of reversal but it tells me that the bulls are slowing down. We do not know what is to come from today’s candle. We could be shaping up for bullish flag, pennant, wedge, all kinds of bullish continuation pattern.
But I know this, bulls are slowing down and neckline is holding true for now.
I do have two necklines here because we do not really have definite (textbook like) pattern on $AAPL HnS. So that’s why we got two necklines. I won’t be completely bullish until upper neckline has been broken.
If you keep up with my updates then you know why I am still bearish and because of that I foresaw that we are going to test the neckline. This is very common practice by most of the stocks. The Head and shoulder forms, it tanks and then it comes right back up to test that neckline and tanks again. This is very common of the neckline testing. And yes there are occasions where the neckline fails to hold and bulls continue but that’s pretty rare to see especially when the Head and Shoulder has been confirmed and defined like it did on $AAPL.
Also people are talking about indicators being oversold. You see that does not matter. It could rest a little bit and goes right back down which I have explained in earlier updates or here (http://2tradersclub.com/aapl-special-analysis-working-with-oscillators/).
So the most critical thing for bulls is that the neckline must be broken to establish some sort of momentum because currently momentum is still in bears control.
But then again we do not know what could happen tomorrow. Bulls might come back and try to break that neckline again tomorrow but for today bears did well for holding it’s gate.
Why did I add more bearish positions? Because the risk vs reward ratio great at this point (very small risk but high reward if this thing tanks). My stop is just above that neckline but the potential reward is huge. Remember the weekly bearish divergences are confirmed on STOCH, RSI and MACD. Since it’s weekly divergences, it won’t show right away but it will come.
– Closed out my Puts @ $630.85
I am now completely out of my puts on $AAPL.
I will be watching closely and see how it reacts tomorrow and next week. If or when 100SMA is broken downside, we are heading for the 200SMA level ($580-$590). All this could take place before the ER if it breaks 100SMA by Monday. If not we are looking at it after the earnings.
Also weekly bearish divergences in the picture so I am STILL bearish on $AAPL until November.
Also people do not understand much about Head and Shoulders pattern and it’s strength when it is confirmed. True head and shoulder pattern is confirmed when the stock makes the neckline and tanks. But shortly after, it comes right back up and test that neckline. If the neckline gets rejected, it will TANK even harder. And this is very common practice when Head and shoulder is properly confirmed. Plus we have weekly bearish divergences on all three oscillators.
You put them together, we have more bearishness coming towards $AAPL.
Bearish Trade Setup
-When or If $AAPL closes below 100SMA ($620)
If $AAPL closes below $620 level, I will re-enter bearish very very heavily. Next target is at around $590-$580 level where 200SMA resides. But the tricky part is the ER day which is the 25th after closing. So I will have to see when $AAPL is going to break that $620 level.
I would prefer it to happen after the earnings (25th after closing) so that I don’t have to worry about getting out of the trade so hastily.
But this is the plan and I am very optimistic that if this thing breaks $620 level (close below that area), we are heading to $590-$580.
10/19 Friday – Re-Entered Bearish @ $618.31
Wow. NASTY looking candle today. That’s what we call a Marubozu candle. Completely shaved from top to bottom. No wick. I remember I was watching this candle form and it was quiet funny because it looked as though it was a Pacman. Every time a little wick appears, it eats it like a pacman. And it did that pretty much all day.
I was reading through stocktwits stream on $AAPL and sometimes I wonder why people are so optimistic even in the midst of this EXTREME BEARISHNESS. I can’t help to think that some people are in love with the stock and they don’t want to believe or admit that this is tanking. In the other hand, I see people just praying through the whole thing saying things like “C-mon AAPL you can do it. go up go up”. I am sorry but this market will rip your face apart if you trade it with that kind of mindset.
Anyway, so people are saying what next. What are we looking at here? Is this the bottom? Are we going to bounce on Monday?
So many people can say so many things without any kind of reasoning behind it so I hope that you don’t just listen to any voices that just says we are going UP! Because that’s dumb.
Well here is what we have.
Like I’ve said in the earlier updates that we have now fully confirmed Head and Shoulders pattern. People really underestimate the power of the Head and Shoulders. HnS is a REVERSAL signal. A strong reversal signal. Strong enough to change the whole trend (I don’t think it will for $AAPL) and it happened with daily an weekly divergences on top of that. So you can see the magnitude and the degree of this reversal is.
HnS gets confirmed and often times, stock goes back up and test the neckline and it tanks. That’s exactly what happened on $AAPL. We came back up to that $650 level, tested, and it TANKED hard.
This is what I think it’s going to happen. We are going to $580-$590 level where 200SMA resides because we have bearish weekly divergences that are confirmed on all three indicators. I believe this is now starting to play out.
Question is how long? Are going to get there before the earnings? That I do not know. But I am guessing that we have more bearishness in stored for us coming week. I don’t know if you remember, we had very rapid decline last 20mins of trading. I think we dropped like 10points or am I exaggerating? I personally think we are going to see another HUGE bearish day on Monday if not, we might get back up and test that $620 as new resistance and continue bearish if that resistance holds.
I will get out before the earnings but I believe we might get to $580-$590 level before that.
10/22 Monday – Added More Puts @ $620.46
This is actually nice for me. I’ve wanted to add more positions before the earnings and I think it gave me another chance to do just that.
This is not by any means a bullish reversal but a short-term retracement which could end by the end of the day. We had three days of bearish days and with a huge bearish day last Friday. To me this is nothing but a rest before continuing bearish.
What I didn’t want to see was a doji today and a spinning top tomorrow. That would really kill time since the earnings in on Thursday after close. But instead we got this good size of bullish candle which suggests that this rest/retracement could end by today.
Again I am bearish until about $585 before the earnings. I just bought more Put Options at the peak of today’s upside move. Like I’ve mentioned at my last updates that we are testing that $620 area level as new resistance which $AAPL loves to do. It tanks and then comes back up and test the new resistance. It did that about 3-4 times in this whole bearish move we’ve had since late September. And I am afraid that’s what it’s doing now.
I am expecting continue of the bearish move to about $585 or 200SMA.
After Close – Was This a Reversal??
Was this a reversal??
What is that pattern that we had last two days?
Can I just be honest with you as a technical analyst? It’s absolutely nothing. Not trying to be arrogant here but I am just stating the fact. In technical analysis, location is EVERYTHING. It’s like when you have a hammer at a major support, its very significant but if you have a hammer in the middle of trend, it’s nothing.
And in this case I COULD say that we have a Bullish Harami pattern which is weak bullish reversal signal. However, I won’t say that because we don’t have solid support on this chart. It’s happening in the middle of downtrend. So that’s why I am saying this pattern today is nothing. Just a hiccup I would call it. Or testing the new resistance of 100SMA.
Also you noticed that volume is very weak today. One of the dow theory is what? Volume must confirm the move. And today volume is NOT confirming this reversal move. That’s why I am confidently say that this pattern is nothing.
Personally this is what I think. Getting close to the ER and all these news about iPad mini and all that. I think this is just hesitation and impulsive move. I really do. It’s nothing but just a hype.. Again I do not know what could happen in the ER so I am not going to bash on what’s going to happen after the ER but until then, I don’t think today’s move had any significance.
Yes I am still bearish in the longer term because of Weekly Bearish Divergences in the picture.
Obviously this is a weekly chart so daily price action won’t have much effect to it but in a longer term, I do believe that the bears are waiting to attack again.
Looking at my moving averages you can see that we barely pushed through 100SMA today. And people are saying let’s go to the moon.. People said the exact same things back in 9/27 and 10/16. I don’t understand many $AAPL traders. They don’t trade this rationally but rather with such a high emotions.
We are still trading below 10 EMA, 20EMA and 50EMA. And people are saying today was the reversal.
Guys let me tell you something. Yes today might be the day the $AAPL reverses and goes bullish forever but as of today, we got NOTHING confirmed of any sort of that reversal signals. Absolutely nothing. This is crazy how people just signifies the whole trend out of 1 day of bullishness.
10/23 Tuesday – Bears Back with Good Volume
I remember about 5 years ago, my mentor told me that he does NOT trade $AAPL on the earnings week. He said he doesn’t even touch it no matter what the chart says. And I asked him why. And he said this, “because It’s too crazy, unpredictable and volatile”.
I remembered those words but I never truly understood it until this week. I thought, “how bad could it be?”. So even though I was taught not to trade on the earnings week (especially on $AAPL), I did trade through it and it’s been a VERY VERY bumpy ride and painful at times.
I think I am making this one up but it looks like a massive bearish flag just looking at the last three days candle patterns. Again don’t quote me on it because I’ve never seen candles form like that especially in the middle of a major support of $620 level and 100SMA. It didn’t even form below or on top of it, it happened in the middle of it. Pretty strange.
Good volume spike came through today for bears and as long as those volume spikes come up here and there, trend is still in effect.
(green = 10EMA)
Look at this. What is this? It’s just weird, peculiar and massive candles that just doesn’t do anything for me at this point. I can’t really say it’s a Bearish Separating Lines formation because for that to be confirmed, you would need today’s close be below Friday’s low of the day. That would’ve made perfect bearish separating lines which suggests this thing is going to continue in bearish. But can’t call that because we closed above not only Friday’s but yesterday’s close as well.
So I am just thinking that it might be a massive bearish flag and could play out that way tomorrow but again I am just guessing.
If it start to trade below last Friday’s LOD area, I would think the selling pressure would continue and take this further down.
$585 was my ultimate bottom of this trend which I talked about back in late September. With today’s price action, we might able to get there before the ER but with craziness we’ve been having, who knows what could happen tomorrow.
-Complete Recap of Bearish Trade 9/26 – 10/23
(9/26 – 10/18)
Getting out in the bottom of that wick on 10/09 was epic!
I just felt it that it was dropping too fast so I got out completely there.
When I got out 10/18, it was too soon. I got caught up with that 100SMA at the time that I thought it might act as support again. If I would’ve held it just one more day, it would’ve been just awesome trading but then again you can’t always trade perfectly.
(10/19 – 10/23)
Here things got little ugly with these unpredictable price actions. I got whipsawed with a loss on 10/22 but able to gain that back next day. Stayed out today because I just didn’t want to deal with all this volatility and it seemed like it was crazy today as well.
My Final Thoughts
I thought I did very well on this trade concerning it was about a month long. This was a fun ride but bumpy at times.
I had received many hate mails regarding my analysis on $AAPL but hey you know what? At the end of the day what it matter is that I got paid pretty well on this trade.
Here are just few examples of the hate-mails or tweets I received. (just for fun)
- Someone called me “Evil” <— >_<
- Someone told me to go back to my own country and told me stop promoting Samsung. <— LOL
- Someone asked me why I hate $AAPL so much <—- really? -_-;;
Looking back it was pretty silly and funny. I am not doing any trades tomorrow and I probably wait until after the ER to set up anything.
I might be thinking to write either Straddle or Strangle for the ER play but not sure yet.
See you on my next post or tweet!
-Why BEARISH on $AAPL until the Earnings