AAPL: Speculative Short Trade

I went short AAPL today. Overbought and lots of space between price and moving average.

SPY Short Setup

I like SPY as overbought short setup. Overbought and into resistance w/ little consolidtaion or pullback.



http://chart.ly/qdyyrw

Trade Entry: ACI (short)

I am short ACI at $28.05 based on the extreme overbought readings in stochastic, along with extended price action. This coal setup was featured in the Trade Report last night, for short on strength at the open.

FCX and PCU: Great Long and Short Setups

PCU and FCX are on fire. Technically, they look great on a pullback to support for long entry. However, they are very extended. Take a look at the distance from the 50 day moving average. I think we are due for a snap back. I will likely short on more strength.

SKX Ready For Pullback

I took a short position today in SKX. The stock is extended and today's indecisive price movement on high volume leads me to believe a pullback is in order.

Speculative GOOG Short

While GOOG is on the bullish focus list and I am high on the setup on pullback, it is very overbought. The two period RSI is off the charts extreme. I took a small speculative short position.

My stop is at $526. Target is $510. This gives me 2:1 risk ratio.

Keep in mind that GOOG's earnings announcement is October 15.

Low Risk AMZN Short

AMZN has been a great "extremes" trade (stochastics 90+ and extended price) for the past few months, both as a long and short. The stock is again extended, and offers a low risk short opportunity.

Entry here with a tight stop offers a favorable a reward to risk ratio. Allow only for a small loss or big gain using a tight stop and target at least 2 times the stop.

My Current Postion: AAPL Short

Last week I posted about APPL showing signs of pulling back, but still being a tough read. As Report members know, I decided to short on the once it made a thrust to $170. Overbought conditions, distance from the 50 day moving average and a negative divergence in RSI made it a decent counter trend trade.

AAPL has now hit the first target. I have taken partial profits and moved my stop up to entry level. This effectively locks in a profit and let's the rest "ride".

Is This Breakout Sustainable?

The market and leading stocks are breaking out after a short consolidation period and overbought readings that are still extreme. Due to the extreme overbought readings, I'm taking a few "speculative" shorts. However, they are done with caution and small positions size.

The idea behind these trades is to expect a small loss. If the trade works, it will be a multiple R gain. It goes to my trading philosophy of small losses and multiple R gains.

Monday Game Plan and Free Trade Report

Here is the strategy I laid out for subscribers to start the week:

http://docs.google.com/View?id=d5z8q8w_1205gxt3rxp3

The market is in a very bullish made right now. As we can see on the SPY chart, RSI confirms the recent breakout over resistance, as it makes new highs along with the index. The volume patterns shows there's some real velocity behind this move, as price is being pushed by some real volume. It's not supercharged, but steadily increasing.

The market is overbought, so entry is not optimal until we get a pullback to support. At that level, one could enter SPY or SSO for extra leverage.

If by chance the market continues to ramp up, we can take another stab at the oversold bounce or rubber band trade. If SPY bounces close to $100, I'll look to take a quick short trade with a tight stop.

Trade Tracker:

I was stopped out of the X trade on Friday.

Focus List:

A few specific short setups with triggers:

Some stocks are showing extreme overbought conditions and setup as "rubber band" short setups on a bounce.

AAPL is stretched about as much as it has been over the past year. Notice that it is piercing the bollinger band and showing extreme overbought conidtions. It's not just oversold, it's extremely oversold. If it bounces again tomorrow ($162-165), I'll look to get short. Only on bounce, which would make a pullback almost inevitable.

SRS is an inverse ETF. While it is a bearish trade, we have to look at it as if we are going long. As with AAPL, it is at extreme levels, but I'd like it to get more extreme. A dip tomorrow to around $16-$16.25 and I will enter.

AMZN is a "failed breakout" trade. The stock broke out of major resistance with a huge price bar and major volume, only to breakdown the following day in equally powerful fashion. I will look to short on strength tomorrow. Stop should be around $91. Low risk, high reward.

Long watchlist

Remember that the market is overbought so I'd like to wait a few days for most long entries. Here is my watchlist:

breakout-pullback candidates: SBUX, NFX, POOL, TXI, ALB, ISRG, CELG

Hot stocks showing accumulation (many commodities): BHP, PCU, NOV, RIG, FCX, ACI, GRMN, RL

Hot sector: Solars are looking really good in terms of price and accumulation. They can turn on a dime and are volatile, but I'd like to take a position on pullback of one of the following: SOLF, SOL, CSIQ or FSLR.

Disclaimer: All information and opinions expressed in this report are to be used for entertainment purposes only. The author of this report is not an investment adviser and does not give buy, sell or hold recommendations. Trading stocks is a risky undertaking, and due diligence is required before making a trade. Consult an investment professional before making a trade. The information in this report is not verified and may be incorrect. The author of this report may or may not hold a position in stocks mentioned in this report.

Exiting Short Positions

Here is an alert I sent subscribers this morning:

I was stopped out of the SPY short (via SDS) for a small loss. Also exited most shorts.

I am NOT taking on any short positions. This is not an orderly pullback. Instead, SPY is showing a strong breakout bar. We'll see if it holds, as conditions are now getting extremely overbought.

While I won't short here, a few more days of bounce would setup "rubber band" shorts, based on extreme overbought conditions (current shorts were only overbought setups, not extreme overbought).

You may be wondering why I differentiate between the two . . .the overbought setup is based mostly on risk and a slight edge. The extreme overbought setup offers a significant edge and I am willing to up my position size.

Today's Trade: SDS

I am shorting SPY using inverse ETF SDS. SPY has reached resistance and is very overbought. This is a recipe for a pullback, as it is very hard to make meaningful advances after a big run up and extreme overbought conditions. The trade is low risk and offers a decent edge.

More on the Overbought Status of Apple

Last night I talked about the "rubber band" short setup for Apple. If the stock heads into the close with the same candle pattern that has emerged this morning, I would expect a pullback based on an early "evening star" candle formation.

My testing and experience tells me that this type of candle formation is an average predictors at best. However, when coupled with extreme overbought readings it gives a very strong edge.

Note that I am still bullish AAPL. It's just overbought and due for a pullback. An orderly dip to support would make for a great long entry.

Against the Apple Trend

AAPL is on my bullish watchlish. Why wouldn't it be? It has a great price and volume pattern, and has shows relative strength versus the S&P 500.

However, the stock is very overbought. Every one of the measures I use to find "rubber band" setups is off the charts. I will likely short the next move higher.

This is a countertrend trade that is very short term and managed with a tight stop. Remember, I am long on this stock. The short "rubber band" trade is short term and against the trend.

The Simple SPY Strategy

My strategy for trading SPY is about as simple as it gets right now: Short strength and buy weakness.

I will look to enter long on a pullback to the 200 day moving average. My "rubber band" short setup triggers on continued strength close to $100.

Monday's Game Plan and Market Notes

Here is my plan for the market this week. The member only "Trade Report" also included my focus list, consisting of the stocks I plan to trade if we get a pullback.

Market Notes:

As I noted last night, the cup and handle pattern emerging from a bottom formation looks good. While it may not be a true bottom, it at least gives an intermediate term clue. The market is nearing short term overbought, so I do not feel comfortable adding longs here. I am waiting for a dip.

If the market continues to inch higher towards near term resistance, I may enter a quick short trade in anticipation of a pullback. If the pullback does come, I would expect a move to support and then resumption of current trend (higher). Thus, my stop on any short trade would be tight, and target near support.

If we get a pullback before becoming extremely overbought (we are currently only slightly overbought), I'd like to start adding positions once SPY hits the 79-81 range.

If we get extremely overbought, I would add shorts in the 85-86 range, with a stop around $88.

How overbought is this market?

Take a look at the T2108 indicator (stocks above 40 day ma) and the answer is clear: we are nearing extreme overbought levels. A little more bounce would get is near 90, which is where I would look to short.

Game Plan for Friday

Here is the game plan for Friday, taken from today's Trade Report:

(See this post for a free seven day trial and 30 minute private chat)

Market Notes:

 

The market drifted up today on decent (but not great) volume, and is nearing the $85 resistance level.  Stochastics are very overbought right now, which leads me to believe a pullback is in order.  From a trading standpoint, I hope there is a pullback.  Entry will be easier once overbought conditions are worked off a bit. 

 

I may consider a short trade if we bounce towards $85 on average volume.  This would be a quick "against the short term trend" trade with a tight stop probably around $87. 

 

 

Increasing the odds of a pullback soon is the fact that the T2108 indicator, which measures the number of stocks above the 40 day moving average, is reaching overbought territory at 75.  I like to see the indicator hit 80+, which should happen if we get another day or two of bounce.

Trade Tracker:

I am still holding SSO and FAS.  I thought about unloading half of my SSO position today, but decided against it since my target has not yet been hit.  I am concerned that FAS has not kept pace, but ill still honor my stop.

 

 

Game Plan:

 

I continue to wait for a pullback for entries.  I also may think about shorting if we get more bounce on average volume.  Any shorts will be quick trades.

 

Focus List:

I continue to wait for pullbacks in focus list stocks.  There were a few good breakouts today (solar stocks like FSLR were on fire), which I'll post over the weekend.  There's no need to post then since it will take a multi-day pullback for entry.

See focus list stocks in Monday report:  http://docs.google.com/Doc?docid=d5z8q8w_842c2357xhj&hl=en

All focus list stocks are over-extended.

If I decide to short strength for a quick trade, I'll use one of the following inverse ETFs: SDS, QID, FAZ or SRS.

Trade: SDS

I entered 400 shares of SDS today when my buy limit order was hit at $88.15. I don't do this often, but I am using two different stops for this trade. Half the position has a stop just above $78, while the other half is above the 50 day moving average.

The market is very oversold, thus this inverse ETF is overbought and near support levels. I expect a market bounce early this week due to overbought conditions.

SPY at a Glance

The doji candle printed Friday, which follows a bounce on low volume with overbought stochastics, leads me to believe we'll see a pullback this week.

Trade: GLD

As noted in yesterday's Trade Report, I went short GLD @90. My stop is around $93 with an initial target in the $84-86 range.

The chart I posted Sunday night details the strategy for this trade. GLD has provided an excellent reversal trade the last 11 times stochastics have hit extreme levels.