This Apple Is Ripe for Picking

04/18/2013 7:00 am EST

Focus: STOCKS

Corey Rosenbloom

Founder and President, Afraid to Trade

A support/inflection pattern developed in Apple from November 2012 until the final breakdown in January 2013, and its reappearance now will help in planning potential trades, targets, and stop-loss price levels, writes Corey Rosenbloom of AfraidToTrade.com.

Apple (AAPL) stock has returned to a key support inflection level and we once again see an IF/THEN situation where the short-term downtrend will either reverse at the inflection point or else break again lower, creating a breakdown opportunity.

Let's focus on this key inflection level, a situation that we saw not too long ago in the stock (which should help in planning).

Apple (AAPL) Daily:

chart
Click to Enlarge

Before assessing the current situation, let's reflect on a similar support/inflection pattern that developed from November 2012 until the final breakdown in January 2013.

A round number reference level can set up a pivot for traders to watch-buyers may aggressively step in to take advantage of a potential short-term reversal or inflection wherein a tight stop can be located beneath a horizontal price support level.

On the other hand, sellers may keep the stock on a watch list, ready to pounce on a breakdown or close beneath the known support reference level.

Sometimes, both sides can win temporarily if a stock initially bounces up off a support level, even if the short-term trend does not reverse (this would be a benefit to swing traders).

After two strong upside bounces in price (counter-trend rallies), price found resistance into the falling 50-day EMA (blue) and then resumed the downtrend toward the inflection price ($500).

Eventually, sellers overcame buyers and price broke support, resulting in a sharp sell-off as buyers were forced to execute their stop-loss orders and joined with short-sellers initiating new positions.

The outcome of that situation led us to the present, similar key inflection support line with similar opportunities.

Buyers have a chance to pick up shares-either for a longer-term reversal or a more aggressive scalp (swing trade)-with a tight stop under support while short-sellers may be waiting for any sign of weakness in the form of a breakdown before adding to existing positions or triggering new short-sale positions.

Let's drop to the intraday (3o-min chart) for a finer detail of recent price action and levels:

chart
Click to Enlarge

Stretching back to the start of March 2013, we see at least four swing lows or 'spike' reversals that have developed off the $420 level in Apple (AAPL) shares.

The other, less obvious level, is the $438 region, which has served as a price polarity point (mainly serving as a resistance line but also the trigger of a breakout on March 15).

From here, short-term bulls could play for an expected swing or rally at least to the $438 level for a minimum price target (similar to what occurred in early April) while guarding with a stop under the $420 level in the event of a breakdown and similar outcome to that of March.

On the other hand, those bearish on Apple would be waiting for an official breakdown trigger signal to add to positions or establish new short-sale positions, potentially resulting in a self-fulfilling prophecy of selling pressure (from buyers taking stop-losses and sellers initiating new short positions).

Nevertheless, the goal is not to predict what will happen, but recognize the key inflection area into $420 and the objective bullish and bearish outcomes (or scenarios) from which to plan potential trades, targets, and stop-loss price levels.

By Corey Rosenbloom, CMT, Trader and Blogger, AfraidToTrade.com

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