Sunday, March 11, 2007

New High Failure Trade and AAPL

One of my favorite short plays is the "new high failure" trade. There are three elements to this trade:

1) That stock makes a new high
2) RSI peaks at a lower level than the previous high
3) Take a short position if and only if the stock dip below the previous high

The recent failure of AAPL is a good example of this setup. The stock broke out to new highs in January. Many breakout traders saw this as a sign to jump on the Apple bandwagon. However, the fact that RSI peaked at a lower level than the November high was a warning sign. While not a signal to short, it was a warning that the stock should go on the "new high failure" watchlist. The optimal entry was few days later, when th stock gapped down below the old highs.

With so many stocks way below old highs, there are not many "new high failure" plays setting up right now. However, there are a number of stocks bouncing up to the old high resistance level. I will be watching this level for short entries. Maybe we can call this a "double" or "bounce" failure. For example, AAPL is inching up to the old high level on declining volume. If the stock fails at this level, which is likely, we could see another leg down.


Anonymous said...


bulls under 14% on TickerSense poll:

I think this is perhaps the new sentiment poll to watch, replacing or at least supplementing II. I think based on the this and some indicators i watch, new highs on the S$P 500 likely in the near-term.



The Market Speculator said...

I am not yet using Ticker Sense's blogger pole to trade off. One, it's new and I have not tested it. Two, it polls many bloggers who are, by and large, smart people who understand psychology. I'm more interested in all encompassing readings.