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The Emperor's New Clothes, Apple Peels


Momentum always has your back- right up to the moment it sticks the knife in.

"They've got a severe case
Of the Emperor's new clothes."
The Emperor's New Clothes (Sinead O'Connor)

Momentum always has your back– right up to the moment it sticks the knife in.

Such was the case with the (BIDU) reversal on Tuesday (see my previous column).

The trick is to let momentum rule and ride the Emperor's coat-tails while recognizing that every momentum Caesar has its Brutus.

Such seems to be the case with the "Sell the News" Apple (AAPL) Bears. If there has been anything more over-hyped than Apple's release of its iPhone, it could only be the idea that the stock of Apple would be a classic sell on the news. And, for about a day and a half it appeared the shorts might be able to take a bite out of Apple.

Although the price action in the stock shows it did break a triangle or pennant (albeit incrementally) downside momentum failed to materialize.

Click here to enlarge.

Instead, on Tuesday when it was revealed that a research firm, iSuppli (no relationship – just serendipitous) said the product could deliver a profit margin of more than 55% after hardware and manufacturing cost, Apple's stock soared.

Tuesday's Large Range Extension on substantial volume left a buy signal on Apple. On the heels of Monday's slight break of the afore mentioned triangle, Tuesday's convincing breakout above the top of the pennant triggered a Triangle Pendulum Buy Signal.

Click here to enlarge.

Note that the upper end of a Parallel Channel is in the low 130s.

This Square of Nine chart shows how 50, 83 and 123 resonate. Note how these prices squared out in late April, when Apple broke out after going largely sideways from the beginning of the year.

Click here to enlarge.

A minimum 90-day buying climax projects into late July. On an interesting note, the company's earnings are due July 25 after the close. Additionally, late July squares out initially at the 133ish level with an alternative and potentially even better square out as high as 145 to 147.

Click here to enlarge.

90 degrees up from 123 equals 133 to 135, which squares out in late July. 180 degrees up from 123 equals 145. Note how the significant high in Jan '06 at 86 is 360 degrees or one full square from 127 which was the June high from where AAPL is breaking out.

The "Good News" Bears may be squeezed as momentum traders pile back on board.

Et tu, Brutus? iPhone, Stevie.
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No positions in stocks mentioned.

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