Sunday, August 31, 2014

Active-Trader - All eyes on AAPL

Welcome back, Active Traders.

Last week's post AAPL New Highs 2014 marked a new all-time high in AAPL shares and was followed-up this past week by even more highs and the graphic on the left announcing a big product launch in early September.  Speculation is rampant that Apple will announce the iWatch or the long awaited iPhone 6 to challenge the competitor Samsung Galaxy s5.

First of all, you have to admire Apple's timing.  Not only are they waiting until the end of the summer vacation season, they are waiting until the first full week of September where everyone is back from vacation. Also, they are waiting for a Tuesday when everyone is recovered from the weekend and fully ready to start ramping up for the 4th quarter which is typically strongest for AAPL shares and the entire retail selling season.

As trend followers, its our job to pay attention to the obvious clues regarding price action, and it doesn't get much more obvious that we are expecting a run-up in AAPL shares ahead of this announcement.  How high to we expect APPL to go?  To get our answer, we turn to the voodoo lines as shown on the right.

Our first target is the upper snow line at 103.09 which is just a chip-shot from Friday's close at 102.5 and will likely open at or above that level by the open on Tuesday.  Beyond that, we have the 432% fire line above at $106.52.  That represents the upper-most fire line in the fib series and beyond that we have nothing more to rely upon technically except for round numbers (such as the $110 price level) and Fibonacci retracements of prior swing lows.

Based on that, I think its highly likely that we will see $106.5 before this move is over and it should be played with the weekly (expiring 9/12/2014) options to including action up to and including the announcement.

The $106.5 price level is a mere 4% higher that the current price level of the stock which is not much of a stretch for most stocks.  But keep in mind that AAPL is the single highest capitalized stock in the US market with a stunning 612 Billion in Market Cap.  That 4 point move represents 23.6 Billion in Market Cap which greater than the GDP of most African countries and is no small move. So expect AAPL to drag the entire market higher, but don't expect moves to be fast and furious.

As for how I am playing it, I am long the shares in both my regular and retirement E*Trade accounts and long the October Monthly calls in my Tradestation account.  The October 90 calls can be purchased for less than 50 cents premium above the price of the shares.  For example, you should be able to buy the October 90 calls for under $13 per contract.  That means you get a $102.5 dollar stock for $13 a share.  Don't load up the boat, but get long here for a run up into the announcement.  It doesn't get much more obvious that this traders.

Have a great week ahead and come back next weekend for the start of my new series on the TTM Squeeze indicator.

Saturday, August 23, 2014

AAPL - New All Time Highs 2014

Welcome back Active Traders.

This past week was a milestone for one of my favorite stocks AAPL - Apple Computer.  Recall we made some good money through 2011 and 2012 buying breakouts to new all time highs in AAPL.

Things continued in a similar fashion until AAPL topped out in September of 2012 and went into a long, steep correction that eventually erased 40% of the stock's value.  The general market as measured by the SP-500 also pulled back at about the same time, but bounced and recovered a mere 2 months later late in November of 2012.  AAPL instead continued to slide.

Things took a turn for the positive when the downside trendline was broken in May of 2013 and marked by my post AAPL Trendline Break. Recall this bottom corresponded with a number of shareholder friendly moves made by AAPL management which had been more or less ignoring the concerns of the shareholders.

Fast forward to August of 2014.  Since then AAPL has had a 7 for 1 stock split - another shareholder friendly move - and finally threatened the old all-time closing high at a split-adjusted 100.75.  I went long some AAPL shares on Tuesday 8/19/2014 in anticipation of a move to new all-time highs.  I followed up with the September monthly 90/110 Call Debit Spread.

I am expecting higher prices, but keep in mind that AAPL is the highest capitalization stock in the US Market at 602 B a full 30% higher than the next closest stock XOM - Exxon Mobil.  This means that it will move slowly and a 10% move up to 110 will not come quick or easy.   This means that AAPL stock will not make you rich at this point - if you are not rich already - but is still worth a long position in my mind.

As for stocks which will make you rich, I prefer earlier stage names such as GILD and TARO.

TARO is a particular favorite with a mere 6.6 B of Market Cap and other key features:

- 5 year earnings growth rate of 47%

- PE of 19.5

- Average Daily volume of only 76 K shares

Consider that in light of a new all-time high in the shares, and I continue to expect higher highs in TARO.

Have a great weekend and great week ahead.

Saturday, August 16, 2014

Active-Trader - Are you trading?

Welcome back, traders.

A funny thing happened to me this past week, I looked back and my recent behavior and realized, I was trading!  Now that sounds silly since I have been trading and investing for the better part of 30 years.  But this was different and here's how you know if you are trading or just on your way to becoming a trader:

5) Its Automatic

Your trading becomes a habit which almost exercises itself.  You don't have to think about it, its just happens by default.

One such trade happened with GILD this past week when in broke decidedly above the 261% fire line at $95.  I went long on the close in a classic case of John F Carter continuation.  The stock opened the next day at $98 and barely looked back.  I'm continuing to hold expecting a test of one of the 2 tree lines above.

4) You are trading setups and setups only

You don't take trades just because you thing something is going to happen.  For example, I was really convinced that GPRO was going to close below $40 and was tempted to sell the weekly 40 strike.  But other than that strong feeling, there was no setup.  GPRO did closed below 40, but it didn't matter.  I didn't take the trade and that's fine.

3) You are controlling your risk

Your positions have an automatic loss cut built into the trade structure.  This is easy to do with option spreads.

 I don't do a very good job with risk control on equities, so I guess I'm more of an investor than a trader in stocks so I fail the trader test there.

2) You are not emotionally invested in the outcome.

It doesn't matter whether you win or lose a particular trade.  There's always another trade and always another day.  As soon as you remove your emotions from the picture, the process and execution becomes more mechanical.

1) Your making money.

Have a great week ahead.