New Trade $AAPL – Getting Long the Untouchable

by Enis February 21, 2013 11:51 am • Commentary

I’ve been waiting patiently for a good long entry in AAPL for a TRADE, not an investment, and I think we’ve finally reached that point.  I was on CNBC’s Halftime Report yesterday, and when I suggested that AAPL might be ripe for a bounce, everyone else thought I was crazy:


That’s not to say that the other traders disagreeing with me on the show is my only trading signal.  And this is obviously a small sample size. But it’s an interesting input because you like to see consensus against you sometimes when looking for contarian entry points.  Much more importantly, in the short term, the technical picture looks much healthier.  Here is the 6 month chart of AAPL with its RSI:  

[caption id="attachment_22911" align="alignnone" width="622"]6 month chart of AAPL RSI, Courtesy of Bloomberg 6 month chart of AAPL RSI, Courtesy of Bloomberg[/caption]


Three important points to note on this chart:

  1. RSI has made higher highs (shown by green arrow) each time AAPL has moved below 450 since its capitulation low on Jan 25th.  
  2. The largest volume day in the month of February was actually on an up day, showing buyers starting to get more aggressive than sellers.
  3. The stock is still in a clear downtrend below the 50 day moving average, but the 50 day ma is still 10% above the current level, suggesting room for a bounce.

Finally, I mentioned in my CotD post from Jan 25th that the $425 level was likely support based on this multiyear chart:

Screen Shot 2013-02-21 at 11.07.38 AM

The stock has made a 1 month base since then, and it finally looks healthier for at least a short-term bounce play from here.

Lastly, AAPL has a shareholder meeting on Feb 27th, which could serve as a near-term catalyst, as a potential buy-the-rumor rally into the event.  Combine that with the strong technical backdrop, and the risk/reward for playing a bounce seems attractive to me.

TRADE: AAPL ($446) Bought the Mar16th 455/475 call spread for $5.50

-Bought 1 March 455 call for 9.45

-Sold 1 March 475 call at 3.95

Break-even on Mar15th Expiration:

-Profits of up to 14.50 between 460.50 and 475, max gain of 14.50 above 475

-Losses of up to 5.50 between 455 and 460.50, max loss of 5.50 below 455.

Trade Rationale:  This is a short-term trade, which is why I haven’t focused on the fundamentals of AAPL.  The long-term story is not going to drive the stock over the next 3 weeks.  This trade is more speculative than most that I’ve put on this year.  As such, I will probably cut my losses if AAPL does make a new low below 435 in the next few days.  I don’t want to hang around too long if I’m quickly proven incorrect.  But as long as it holds 435, I am likely to stay in the trade.