Members Trade Update: $AAPL Likely Heading to $136 Area Next.



BotTrigger Trade Update: $AAPL forming a bearish "descending triangle" here at the lows of last Friday's plunge. These patterns are usually continuation patterns of the prior move/trend. The lower highs indicate opportunity-sellers as orders compete to scale out ahead of each other. Instead of getting an equal high, they're trimming what they can sooner. Again this is why we don't need to rush into buying anything on AAPL just yet. The opportunity will come for sure. But right now it's important to gauge the quality of this drop & the cultivation of a larger breakout/down pattern. We expect there to be another wave of selling pressure to occur sometime next week. AAPL closing the week here around the low $140s is definitely a bearish sign. Just last week it was @ $156 so the market is getting comfortable with this lower range. What this tends to mean is that the market will puke this lower to flesh out where the most earnest demand is. Another possible outcome, and likely the most probable outcome is we will see AAPL cultivate a giant bull flag that builds up from now till July earnings. Welcome all this. The premiums on call spreads have already come down significantly since this plunge transpired. Right now we're eyeing several. For example, the 2018 June 130/150 Call Spread is going for $10.58. If AAPL can push into the low 130's we could easily see this spread get around $5. That's a 300% gain if AAPL closes @ $150 a full year from now. Breakeven is AAPL @ $135. Right now the market wants $10.42 for this and that's just way too high still.


BotTrigger Trade Update: Here is what the $AAPL 2018 June 130/150 call-spread looks like right now. The purple line that's overlayed here is AAPL's actual stock price & the candle bars is the trading value of the spread. Notice it traded as high as $16.95 when AAPL was around $156 a share. At the height of volatility during last weeks plunge we saw this spread hit as low as $7.50 when AAPL dropped to $146.02 last Friday. We saw that same value back on Feb 9 when AAPL was trading around $132. So notice that we didn't even need to get to $132 for the spread to get back down to $7.50. The primary reason the spread reached that value of $7.50 w/out the stock getting back down to the $132 area has to do w/ volatility & time decay. So it's very possible that we can get an entry of $5 if we get the right conditions of heavy volatility & a capitulation throw that scares the heck out of everyone. Heck, we may even get far more attractive pricing then we're modeling for. Capitulation & heavy volatility will do it, OR if AAPL grinds here & pulses out a giant bullish flag from now till July/October earnings. that consolidation grinding will drip the value of this spread. As mentioned, we'll table some others in the far more conservative & aggressive category. Keep in mind, that we don't need to hold the June 130/150 call spread till expiration by any means. In fact, a rally from $135 to a retest of the $156 high would almost immediately double the value of this spread in quick order. From there we could assess the AAPL setup & decide if the juice was worth the squeeze

A few important points to mention about how this week transpired. First, the Apple and tech sell-off turned 1-week today which is a pretty big milestone considering the fact that since November every sell-off we've seen has lasted only 1-3 sessions at most. Whenever there has been weakness it has been very short-lived or very small in terms of percentages. Apple opened the sessions at $155 a share last Friday and if the stock closed the week @ $142.50 -- which means the stock is down $12.00 from the open of trade last Friday to the close of trade 1-week later. That is down about -8.5%. That is very much consistent with the start of a correction. This certainly strengthens the bear case. Secondly, the longer Apple hangs around the low $140's ($142-$144) the more comfortable the stock becomes down here at these levels. It's not some foreign trading zone where the stock spends only a few hours trading. As time wears on, the $150's seem more distant and foreign to the stock. Third, Apple continues to develop this descending triangle pattern. The descending triangle is a bearish continuation pattern and the measured move is -$6 down below $142. See below:


That is just one of the dynamics that can tailwind a push lower on AAPL. Doesn't mean it has to happen but it's what tends to happen more often than not. These measured moves are where we can expect the bigger buy orders to be sitting at and we'll be watching to see what those inflows look like. There is something called "market depth" on every stock and it shows a ledger of all the waiting orders on both the buy & sell side. As a stock is bottoming, you'll see the buy side start to dwarf the sell side. However one day of it is not enough in most complex bottoms. We need to see the relative curve of market depth start to increase on the buy side over several areas of a bottom. Why? Because whoever bought still doesn't tell us if they're holding it or dumping it higher. And so we need to see the ledger consistently show strength at the lows. In a nutshell that's how we achieve multiple instances of bottom support lines. Also, limit or waiting orders to get filled don't tell the full tale. And so there's multiple dynamics that will be considered as this pattern cultivates. The important part here is to vet out the quality of the bottom as it starts to unfold.

So the reason the descending triangle is bearish is because you get lower highs and multiple revisits of the lows. Eventually, the low is taken out as the upper trend-line descends ever closer to the support line. It is typically a very bearish continuation pattern. So this sets up a good opportunity for Apple to breakdown below that support line early next week. And if that happens we should see a resumption of the original selling pressure. If Apple loses the $140 level, it's all together possible that we can see a very similar decline to what we saw from $150 down to the low $140's. It was just a mere two sessions of selling pressure that brought Apple down from $150 to the low $140's. Keep in mind that Apple fell from $155 to the low $140's in just two days. So we could see a similar sell-off once Apple takes out the $140 level. If we start to see that free fall action, that's when we want to step in and buy a rock solid call-spread on AAPL when the options market is heavily discounted at the peak of volatility. So the idea here is that if Apple starts to take out multiple levels below $140, we look to buy as the decline is happening and with a close eye on oversold levels. At the current moment, Apple is trading at a 30.66-RSI on the daily chart and at a 32-RSI on the hourly. Once we see the daily chart start to really decline under the 30-level and the hourly RSI push well below the 25-20level, that is when we should take a close look at a call spread.

Depending on this unfolds, we're making room for 2 types of call spread entries. Our most conservative call-spread will occur first. Likely higher than where the ultimate low. We don't want to be greedy with our entry. And what I mean by that is to sit there and wait for the most bearish of low targets to hit. It's entirely possible that AAPL recover from this faster than we may model for and the last thing we'd want is missing a great entry on rock solid conservative call-spread that has 150% gains written all over it. These opportunities seldom last for more than a few hours when they show up. Sometimes it's a capitulation low that lasts mere minutes/seconds. So with our most conservative position we get allocated sooner than later when the price & "conditions" is near right. Just like we did on the AAPL 110/120 call spread @ $4, a position that will be worth $10 for a +150% gain so long as AAPL closes @ or above $120 by January of 2018. That was a no-brainer type trade. So we'll be finding something very similar.

Our second allocated position will be more aggressive and will require absurd discount pricing. Think AAPL very briefly breaching below $130. I doubt we see that and that's largely because AAPL is still very much in a strong bull trend coming out of the summer 2016 bottom. That and the iPhone 8 will be their record breaking quarter this January like no other. A breach below $130 is possible but we're not going to bet on it. We'll likely see something like the mid $135 area and then a strong bounce back to the $145 area followed by another retest of the mid $130s the creates a brief lower low tagging $134 for example. In time, the oscillations would start to take on a larger bull flag type look as it unfolded.

For example, take notice of AAPL's parabolic rally from April 2015 - March 2015. It went up more than 65% in short order much like this rally. During it's ascent it experienced 2 rather large pullback areas. Notice that they both had trauma type plunges, the latter one especially and that plunge ended up causing the stock to consolidate into a new trading pattern before the larger rally would resume again. The 2 charts below are the same view just highlighting different angles of information.



So this was right before the top of 2015. Take notice of the plunge that occurred on December 1, 2014. That's psychological damage to the trend. It rattles the nerves and creates a intermediate term kink in the trend. What transpired from that was AAPL cultivated another continuation pattern as we can see here in this giant 65 day bull flag. Once the market & news worked itself out we saw AAPL rally almost another 30% from the lows of that bull flag. So we could easily see something similar here. We'll do a more an updated post modeling out our upside forecast on AAPL and present the evidence for why AAPL is still in a strong bull cycle. And where we might expect that trend to start to change as soon as early to mid 2018. It doesn't have to be a bear top but we'll showcase the definitive evidence on what will objectively show up on the charts when that top starts to putter out.

Regarding our options strategy for our call-spread entry, we'll be publishing the full strategy by this Sunday so we're ready for to make a move when the opportunity shows up.


Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”