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Reviewing Stock Sell Signals via Apple, Kinectic Concepts, and Alexion

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While all of the sell signals here are lagging indicators of a stock's health, they can come in handy in assessing the general trend of any particular issue.

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As weakness continues to ooze through the tape, I find this a good time to review some of the classic sell signals that stocks give us. While every trader would love a definitive signal that would get them out pennies from the top and draw them back in at the exact bottom, we all know that reality is much harsher. Sell signals that are obvious in hindsight are much harder to decipher in the midst of the rollover. Here are three recent patterns that all traders should tuck away in their memory for later recall.


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Ah yes, one of the most storied companies of recent memory has to be Apple (AAPL). Revolutionizing user interface with their technology, AAPL has been an innovator leading the pack for years. While great new products and firm balance sheets tell half the story, there is also a lesson to be had by taking a look at the price action. AAPL has been flashing warning signs for a large part of 2011. Were you even listening?

AAPL started 2011 by hitting all-time highs of $364.90 on February 16, 2011. (This is point "A" above.) From there AAPL pulled back to the 50-day moving average, and while the selloff was steep, support held (Point "B"). It was from here that a trader would want to start paying attention to the clues that AAPL is sharing. As noted by the series of hash marks above, AAPL was making higher lows and higher highs through point B. When the next higher pivot was in place at point "C", this should have put traders on notice of something transpiring under the surface for AAPL.

Clearly, a lower high at point "C" is only the first clue and should never be construed by itself as a sell signal. But when prices broke below point "B" on their way to point "D", traders had confirmation that a potential change in character was setting in. Taken together as clues, a consecutive lower high and lower low gave a crisp signal to get out of Dodge. Final conformation came when AAPL traced another lower high at point "E." Currently, AAPL is still tracing lower highs, but did put in a higher low at point "H". In order for a change in character once again to be put in place, "H" would need to hold, and "I" taken out with new highs. Until then, AAPL is clearly telling traders where it is headed.


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No positions in stocks mentioned.

 

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