[UPDATED] - New Members please read where we're at with AAPL. Although we primarily focus on stocks in our trading positions, we occasionally will model certain options trades that are conservatively tilted & very much hedged. We ask that you please familiarize your self with the ongoing BotTrigger narrative so that you can best take advantage of the setups that we model for and then reconcile them along with your own appetite. We have outlined several conservative strategies using options and how you can still yield oversized gains by asking very little from the stock. For example:
As of now we are long the March $100/110 call spread @ an entry of $5 and stand to make 100% ROI (return on investment) so long as AAPL closes at or above $110 by March, 2017. Break even is AAPL @ $105. Essentially AAPL needs to merely stay above the $110 mark from here till expiration and that position will appreciate to a value of $10. We purchased this @ $5. A trade that we believe is conservatively grounded in reaching a very reasonable target. We have also entered the January 2019 AAPL 110/120 call spread @ $4. Max value of $10 is achieved so long as AAPL closes at or above $120 by January of 2019. Again, a very reasonable target. Although these 2 trades were modeled well in advance, we ask that you please read about them so that you have a general familiarity to equip you with our on-going narrative here at BotTrigger. If you don't yet have a a familiarity with vertical call spreads please read the following posts:
Then please read the next post on where we're at with AAPL and what we expect to happen next. There is a possibility that we may be selling our March spread sooner than expiration for the reasons highlighted in the following post.
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So it's becoming increasingly more likely that we should see a breakout of the neckline $112 area as early as sometime by mid December. For new members just now following please catch up on our AAPL & market posts at www.bottrigger.com/membersblog
As we explained throughout the week, the $112 level for Apple represents a point of heavy resistance AND it marks the neck-line of a potential inverted head & shoulders for the stock. Remember, $112 was the high point for the previous rally when Apple first hit a 30-RSI at the $108 level. A couple weeks ago Apple bottomed out after it sold-of from $118.30 down to $108 a share. It then rebounded to $112, topped out and fell to $104.08 a share at the lows. It then rebounded again back up to $112 a share. What I just described right there is a likely bottom from the lows. While Apple has made lower lows, it has also make higher highs or at least matched the highs. This sets up an inverted head & shoulders or double-bottom. Secondly, keep in mind that AAPL made lower lows on the Near-Term time frame but has made higher lows on the Intermediate-Term time frame, whilst also making higher highs on the Intermediate-Term time frame. This is very important to distinguish in the overall scale of what's happening. See below
So pound for pound, we have constructive development on the formations being cultivated. As of now we can also see that AAPL is potentially going the path of the inverted head & shoulder bottom we've outlined. Here is the updated view:
Notice that Apple can go all the way down to $107.50 and the inverted head & shoulders scenario is in play. But keep in mind that the hourly RSI is already down to the 48.5-level which means we could sitting at oversold conditions well before that point. Apple is only down a dollar and the RSI is already down to below the 50-level from 70. So that's actually fairly positive. Why that's important to distinguish is that anytime AAPL get's down to a 30-RSI on the hourly time frame, the likely hood for a bounce is always where it historically happens. This makes the likely hood for a breakdown of the $108 right shoulder area unlikely. And very conveniently that's where support is at this $108 level, which further reinforces the cultivation of this inverse H&S bottom. So here the hourly RSI is the thing to focus on as we go thru this pullback. Take a a look:
Finally, another point to make is that Apple not even go the way of an inverted head & shoulders bottom as the stock may already be in rally mode with today just simply being a pull-back after an 8-point run from $104 to $112. That's always a possibility. All of the big names in large-cap tech are down just as much or more than Apple today. Apple is down 0.85%. Amazon is down 1.12%, Facebook -0.93%, Google -1.17%, PCLN -1.02%, QCOM -0.51%, Yahoo -0.66%, HPQ -3.48%, and Microsoft -0.85%. So you can see the large cap popular tech names are all trading in unison today. This isn't just Apple. It's the market. The NASDAQ-100 is down 0.5% on the sessions too.
So that is the bullish outlook. As we saw during this sell-off, Apple had every opportunity to fall through the floor and pass right through $100 a share with just a few more days of selling and the stock bottomed out at $104 on a brief intraday low. It bottomed out at just under a 30-RSI on the daily chart within an intraday RSI-low of 26. The stock didn't close at a 20-RSI or even at a deeply oversold level on the daily chart. When you look at the chart, it appears by all standards that Apple bottomed at a 30-RSI even though intraday the RSI went lower.
Remember, Apple just came out of a typical 12-month+ long bear market. When that typically happens, it goes into a multi-year bull market. So to expect that Apple would re-enter a bear market right after just exiting one is not a good bet to make. Finally, it's important to remember that the long-term chart in Apple -- the one that is significantly longer than the potential head & shoulders top -- points at a long-term bullish reversal. The massive double-bottom is still in play. The neckline sits at around the $120 level with the double-bottom at $90 a share. That's a 30-point double-bottom that has formed. The upside target is $150 on the long-term chart. Take a look below:
The pattern here is long-term ultra-bullshit. It's basically a hybrid of an inverted head & shoulders and a double-bottom and w-recovery. Look I know it sounds like bullshit. It isn't. Remember, what makes these patterns bullish in the first place is partly what the action says about buyers and sellers. What it says inherently is the market has essentially tried on four separate major attempts since August of 2015 to take Apple crashing below $100 a share and has failed every time with the bulls gathering in strength toward the end of the pattern. The bears started off by gathering in strength in July-August 2015. The bulls responded. The bears gathered in more strength. The bulls response was weak. The bears tried a second time and failed to take the stock below $90 and the bulls response was finally very strong recovering $30 out of $40 lost in the initial sell-off. And finally the last attempt by the bears was the weakest. That's what we see on the 2-year chart for the stock. Yes it's possible that the bears can try to take Apple back down to $90 a share, but I think that scenario is less likely when the bulls have recovered the stock 30%+ from the lows. So that's why even though the potential for that set-up is there, we continue to expect that the current correction is more likely a typical correction than something more sinister. The developing near-term pattern seems to confirm that.
Still, like I said yesterday, the main concern that you have to watch is how Apple trades as it gets closer to its highs. Now for where we are today, it's still not obvious whether the action is just a minor pull-back in a larger on-going recovery or whether Apple is setting up an inverted head & shoulders bottom or even double-bottom. At this point the pull-back is minor enough that it could simply just be a small 1-day pull-back ahead of more upside next week. Like it may not go as far as the $108 level. That's just a target zone we're looking for as we model out the inverse head & shoulder. A pullback to simply $110 - $109 would still very much look like the inverse H&S setup.
Also keep in mind about the Fibonacci Retracement Zone (FRZ) we have discussed before. FRZ zone is the area that healthy trending stocks most commonly will pullback to as they trend higher or in AAPL's case are recovering from a bottoming pattern. So from trough to peak what we see is that stocks pullback a retrace a certain percentage of the rally. FRZ is defined as the retracement area of 38.2% to 61.85. Right now on AAPL the FRZ sweet spot would be for it to pullback to the 38.2% level, which coincidentally falls very neatly into the inverse H&S pullback zone that we've been outlining. These coincidences are not by chance. They happen more often than not in the market. Just as serendipitous as when media stories flood bearish news at the top of a stocks range & then coincidentally pump bullish news near bottoms. The cycle repeats itself. We see time and time again a confluence of levels confer the alignment with other disciplines of analysis. Like how RSI will hit the 30 level on the hourly and how stochastics will be getting ready to do a bullish crossover. So these are things that are looked at.
Again, here is the entire sell-off on the hourly chart. Notice Apple could still very easily hit a low-point at $110-$109 as it tests that major area of support, bottom out and resume its rebound; or the stock could push down toward forming a right shoulder on the inverted head & shoulders set-up. I think what will be controlling is the hourly chart. Notice where the 38.2% retracement zone is:
Let's take things one step at a time. Notice that the measured move of this inverted & shoulders (or double bottom) set-up is +8 ($112-$104 = 8). That means the upside target on breakout above $112 is $120. Depending on a few other factors related to volume thrust & the quality of how the bid is chased, we'll decide if the best place to rotate/sell our call-spread will be around $115 or higher.