(NASDAQ:AAPL) shares, which were in free-fall mode all of October, have already spooked investors with a $120 drop from the all-time high in September. So, what will November bring? As we all know, it’s hard to follow through without a proven trading strategy to keep us focused, thus a reminder: The key is to buy when others are selling and then sell when everyone is buying.
Back to Apple. The tech giant's shares really have helped in holding the overall stock market up in the past, but recently it has been a big drag on the broad market. Taking a look at the chart below you can see my analysis and thoughts on AAPL.
The red horizontal line shows the key level where high volume traded in the past. For the market to reset (flush out investors/traders) it must shake as many longs out before it can start rising again. That price-break level -- which also happens to be a Century Number $600 -- was where many investors had placed stops. The proof is the volume spike of 40,000,000 shares which clearly shows that stops were triggered once that $600 level was broken.
This is a good thing: We want stops triggered because that gives more power to the next rally/bounce.
The Nasdaq has formed a similar chart pattern, not the least because it is heavily weighted with AAPL shares. Trading Nasdaq, PowerShares QQQ
(NASDAQ:QQQ), ProShares Ultra QQQ
(NYSEARCA:QLD) or the Technology SPDR ETF
(NYSEARCA:XLK) are much more affordable ways to play a bounce/rally in the coming weeks.
Russell 2000 Index
I really like the Russell 2000 Index because small-cap stocks can rally hard and fast, outperforming the large caps like AAPL, S&P 500
(INDEXSP:.INX), Nasdaq, and Dow
(INDEXDJX:.DJI). This index is looking ripe for a bounce in the coming days which could trigger the next major rally to new highs. You can plan this index through TF ("mini-sized") Russell 2000 Index futures contracts such as iShares Russell 2000 Index ETF
(NYSEARCA:IWM), Direxion Daily Small Cp Bull 3X Shs ETF
(NYSEARCA:TNA), and UMA exchange traded funds. [Editor's note: Unified Manged Account is an investment service which creates one account for all of an investor's holdings of separately managed accounts, mutual funds, ETFs, etc. The service is offered by several providers.]
This setup looks very promising because the election is almost over and the Santa Clause rally is just around the corner. But know that some of the biggest drops in the market happen during times when the market is running the stops. It is a natural tendency to take big positions which things look great, but that is not how you should do it. Take calculated position sizes, knowing indexes could fall another 2-3% before putting in a real washout bottom.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.
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