Monday, March 25, 2013

AAPL: Bull signal

Apple Inc. (AAPL) broke above its 20-day price channel on Friday and confirmed the bull signal this morning by trading above the $460.97 beakout level.

AAPL has been in a downtrend since last September, tracing a series of lower lows and lower highs. To open a bull position at this point would be to engage in a counter-trend play.

I'm a trend follower. My idea of fun is to jump on board the train and ride it for awhile. I never stand on the tracks and command the train to turn around.

So taking a bull position in the midst of an AAPL bear trend would be a strong violation of my preferences.

Having said that, I also think that AAPL isn't so far away from reversing the downtrend, if the trading consensus works out that way.

The most recent lower high, on Feb. 11, was $484.94. The price fell to a lower low of $419 on March 4, and from there began the present leg up.

A move above $484.94 would set a higher high, putting in place a third of what is needed for an uptrend. If the higher high is followed by a drop and then a reversal, all above $419 level, then AAPL would be either in an uptrend or a triangle formation of some sort. A new higher high would sort that out and mean that an uptrend is in fact in place.

The proper point for a trend-following trader to jump in depends upon the degree of risk the trader is willing to accept. I'm not entirely risk averse, and I hedge risk through options spreads, so absent other information, I would treat a break above $484.94 as a trading signal (and I've put in an alert to track any breakout above that level). More risk averse traders would wait for the reversal from a higher low, and people who hate risk with operatic passion would wait for the second higher high before trading.

AAPL's odds, since the broad markets began to recover in early 2009 from the post-recession crash, have been strongly skewed toward the upside, with 10 out of the bull signals producing a profit averaging 14%. Adjusting the profit by the 16.5% success rate produces a score of 8.7%, well above the 5% minimum I prefer.

However, since the present trend began last September, AAPL has produced no bull signals. Two of the three bear signals were profitable, with an average yield of 8.8%.

Decision for my account: For the reasons discussed above, I'm not trading AAPL to the upside at this point. But a trade may be possible soon. 

The remaining survivors of my screening process are all lower-volume trades.  (See my weekend posting on Friday's breakouts for details of my screening.)

My funds for lower liquidity trades are committed, so AAPL was my one opportunity to trade today.


My trading rules can be read here.  A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.

And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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