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M A Top For Apple Redux

Sep 26, 2012 9:34 am Print Print

180 degrees down from last Friday's 705 high in Apple (AAPL) is 654.

This ties to the bottom of the feet of an 'M' in what may be an M A Top.

Stabbing back through the little double peaks of the 'M' may have been a warning shot over the bow with confirmation of a more serious decline coming on a break of the feet of the 'M' around 650.

This also ties to the 50 day moving average in AAPL, which closely coincides with the prior peak at 644 in April.

This is likely where many stops of long-term bulls are clustered.

See 10 min AAPL here for 2 days:



The following is a note from my 'gnome' from Monday morning:

"I am seeing some interesting risk trades chasing returns in the higher beta names that may portend where prices might be headed and accelerate towards if we start to head down.. These trades are being placed for December expiration in some of the following names:

AAPL, PCLN, GOOG, GLD, GOOG

An example of the outsized risk tht is being employed:

If one has $1MM to invest in AAPL, instead of bying the stock at $700/1400 shares, the same money manager invests the same dollars in the Dec $620-$650 call spread for $22/buy 450 spreads.

If AAPL drops to 620, the purchase of 1400 shares loses ($98,000) and can choose to remain in the stock. If the same occurs in the call spread, the investor suffers a 100%/$1mm loss and does not enjoy the luxury or choice to hold the stock past December. Obviously if the stock stays at $650 or above the spread investor makes $351,000 or 35% in 3 months. I am seeing a lot of these trades being employed in hopes of garnering returns. I am sure there are other high beta names I have not identified, but I believe this is where the real risk/inflection points will occur in many of these names as the upper end of the spreads is approached there should be massive selling pressure. If one looks at the Open Interest in many of the high beta names it is easy to spot the spread that is being employed."

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