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Time To Take Profits On AAPL Short

 February 25, 2013 03:13 PM
 


Yes folks, it's time to Book Profits on our AAPL Short position and call this trade a home run for now. There's a lot of play left but right now, we'll leave it to the market makers to conduct their price discovery in search of natural buyers and sellers. This could have been a long-term top that needs confirming, or the bottom is in and a $40-$60 rally is about to take form. Either way, banking almost $300 on the short is right around where we don't want to be pigs and get slaughtered. We coupled this trade with some deep out of the money puts and those exploded in value from about 85 cents to over $65 per contract. Combined with the net gain on the common, this trade started 2013 off with a huge bang allowing us to take a couple weeks off.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

After initially building a small short line after Apple gapped several days to $700, the false intraday high followed by a gap down was a classic top. A right shoulder was attempted but the attempt was feeble at best, once $650 was broken, we continued adding and the black swan put was exploding in value. The straight line shot to $530 was followed by a monster squeeze but if you had the nerve to let the stock trade back up to a convergence of its major moving averages, and rebuild your short after the big green candle knocked out a lot of stops, you're sitting on an additional $130 profit after banking roughly $140 on the first leg. So now what? In late January, Apple traded massive volume after an enormous downside gap that took prices from $515 to $465. That was the day when volume exploded to over 52mm shares, and over 4 days, almost 200mm shares traded. This is generally an exhaustion gap after a major correction in the stock, in this case roughly 33% from the high near $700. Although there's quite a bit more room possible to the downside, we're not going to get greedy. Short positions should be closed by now and profits locked in. The stock has set up 2 higher lows following the exhaustion gap in January. Although volume has been anemic and none of my indicators are confirming a bottom is in place, we're going to back off and let the stock settle down. A break above $485 could mean the exhaustion gap is going to close, offering a possible $30 gain with a risk of about $4. For now, $462 is the price area to be concerned about because the dominant moving averages that are controlling the trend converge right around that level.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

Switching gears to a weekly chart to take a longer term look at the stock, we see a massive top which began forming last April and confirming in December. For this top to be confirmed, a rally directly into the exhaustion gap would meet the confirmation line, which if confirmed, measures a downside projection of $335, the original price point suggested in the previous post about looking at AAPL as a the greatest short set up seen in ages.

In conclusion, the short trade worked like a charm and we knocked this one out of the park. It's time to back off and not be pigs, let the stock back and fill as the market makers look for natural buyers and sellers and once there's a confirmation either way, there's another truckload of money to be made, either long or short. That's why I love trading AAPL. The risks are small and the gains are massive.

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