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Monday, December 03, 2012

Wolf on Wall Street AAPL Analysis

This is a very rarely posted, Wolf on Wall Street AAPL analysis article. There's a lot that goes in to understanding underlying trade (smart money) as well as that trade within multiple timeframes so we can be ahead of the trade and let it come to us. 


OK so we know the trend table for AAPL, our Short term trend expectations, our Sub-Intermediate (maybe even Intermediate term) and our Primary trend (maybe even our "Secular Trend"). If you re a really new member you might not know all of these, I'll be glad to explain any questions you have via email. 

*As always, if the information changes and probabilities are changed, then trades are reassessed. If information changes so much that probabilities are not just effected, but flipped 180 degrees, we go with that. No one here is trying to win a big stuffed Teddy bear for guessing when AAPL will enter a Primary trend, we are trying to understand the information we have and use it to our advantage.  We do want to follow the message of the market, we aren't looking to have the best guess and call ourselves "Gurus" because we all know it would be nothing more than a lucky guess. This is the entire essence of the saying, "Do you want to be right or do you want to make money?", some people really can't distinguish between the two concepts.

So lets take a look first at the normal AAPL update and what we have, you know which way I think our first trend is going to take us and how that sets up our next trend.

 First you my remember me warning about AAPL and the looks of the parabolic nature of trade in 2012, I wrote many warnings about AAPL and always mentioned the parabolic move in 2012 being a change in character and that these moves almost always end badly. Before AAPL ever started down, we knew something was wrong. It took 8 months to create this parabolic move on a 5 day chart, it took only 2 months to erase 2/3rds of the gains. Remember Fear is stronger than greed?

Just as a few examples because I certainly can't remember them all and each post is quite long:

AAPL Update (April 2, 2012)... "the VERY parabolic move that actually started since 2009 has become EXTREME since the start of 2012, everyone knows how I feel about parabolic moves either up or down, they tend to end badly and we have seen the evidence of this on numerous occasions, but this being a weekly chart, it carries special importance toward the longer term trend in AAPL. I want to show you MSFT when it was behaving in similar fashion..."

AAPL Update (April 24, 2012) EARNINGS... "As you know, the indications have suggested Tech wants to rotate in, despite having some fierce head winds...everyone knows and has known forever that AAPL guides VERY conservatively, therefore they easily beat-except once not too long ago....The market is most likely sticking with the trend, AAPL guides low, comes out with a head line beat, Wall Street takes apart the earnings report and everyone realizes after a few days that AAPL growth is probably not sustainable at the past pace. Thus if there's a volatile short term bounce, which industry group is likely to lead it? Tech....This is and always has been (so long as it has been there) the great hope pinned on AAPL and thus a tech led bounce, a 15 min positive leading divergence. The 15 min timeframe sounds small, but it is very influential and has moved more than just a swing trade.

We were right on the AAPL (earnings) led Tech move in to rotation, that was the last day at the lows for Tech and it saw about a +4% move up over the next 5 days. AAPL gained over +9% the next day on after hours earnings reported on the 24th,  as mentioned above in the last paragraph about selling in to any huge move up, AAPL spent 1 day there before starting a decline over the next 17 days, taking AAPL -14% lower!

AAPL Update (Sept. 13, 2012)..." Recent price action has been choppy and range bound, sometimes the back of a stock is broken before price reflects it, the red arrows are what I consider to be important days for AAPL....  Intraday from yesterday's rise and this a.m.'s gap up with flat prices forming a triangle, we have a perfectly shaped bull flag and volume confirming it, traders will front run expectations and buy this pattern in advance as it suggests another leg higher about the same as the first (+3.5%) once the flag breaks out to the upside, this is where we often see traps set as technical traders follow TA like it's the bible."

In fact, from the 13 our target of approximately +3.5% was just about where AAPL topped in  late September.

Nothing Much Changed In AAPL (September 26, 2012)..." AAPL with a parabolic move up on a 7-day chart, these moves are spectacular, but they also have the "Bubble-Effect", the belief that these kinds of gains are sustainable, this time it's different, etc. I think we've seen enough of those moments over the last 12 years that we should be wise enough to know that it's never different, a bubble i a bubble and they all burst... With the way things stand now, if anything, I'd be looking to sell or short price strength in AAPL. Believe it or not, AAPL wasn't the first market darling that everyone was in love with and saw a parabolic move up. Anyone remember MSFT?"

I can't spend all night looking for posts warning about AAPL, but there were plenty. Lets look at AAPL from here forward and see what the probabilities and opportunities are as well as interesting concepts.

 This is the 5-day "Channel Buster" concept, the trend that was there for 3 years all of the sudden got very volatile and broke the channel to the upside. While this "seems" bullish, this is almost always a major red flag, upside volatility gets very heavy just before a top is formed and ultimately these Channel Busters see a second break, the one through the bottom of the channel. "Changes in character precede changes in trends"

 I often mention ROC (Rate of Change) as one of the ;east appreciated indicators that can give enhanced signals to just about anything you add it to. Here on a 9-day chart I added a 10 bar ROC to price, note the couple of divergences it calls out on this long chart (a shorter chart will have more details and divergences, but the longer chart has the more serious ones). Note the negative ROC price divergence at AAPL's recent top, it's by far the sharpest and largest on the chart. Below a 5 period (because of the 9-day chart) Wilder's RSI also calls several signals including the most recent top. Add ROC to Wilder's RSI and see what you get!

 Locally for near term trade, here's the 1 min chart showing immediate distribution on the gap up in AAPL this morning and basically every other place we looked. The very small positive divergence late in the day really doesn't mean much when you look at the big picture and it may very well just be run over on such a short timeframe.

 Here's the 1 min trend, but a little longer view, you can see AAPL is leading negative and has been distributed at both recent gaps up.

 Here's an even longer 1 min 3C trend, the leading negative divergence is a lot bigger than you might have thought.

 On the intraday (but more important) 3 min 3C chart, we see a few positive divergences at lows so they can lift AAPL and sell in to the price strength, which also creates demand by retail that smart money can sell to. Today's leading negative divergence was not pretty in AAPL.

 On the 10 min chart we see a green price/trend confirmation arrow and then a leading positive divergence at AAPL's lows, the move higher has seen distribution with a leading negative 10 min divergence hitting a new low. It seems pretty clear what smart money has in mind for AAPL in the near term and they appear to be positioning for it, just as many of us did last week.

 The 15 min chart shows several divergences to the left, just so you appreciate them and not only see a small arrow, I told you how long those divergences lasted, 6 and 5 days. Then as AAPL moved in to its highs we see distribution in to higher prices, while retail thinks AAPL is bullish and they are buying, smart money has a different opinion and are more than happy to sell their shares at a higher price and in to healthy retail demand. On the right we have downside confirmation with 3C and a recent leading negative divergence in to this last pop up, I originally suspected the market would put in a pullback, strong, but a pullback; I'm starting to think it may be uglier than that.

 Here's a closer view of the 15 min chart in the recent swing up, it' leading negative.

 The 30 min chart tells us a lot, to the far left is the first time we shorted AAPL as a core short and aw a 16% gain on the position before accumulation took place. I had warned before and right after that I suspected AAPL would have one strong accumulation period and they would use that to push AAPL higher and sell in to the entire trend higher; you can see where they really started distributing. You can also see this is the first positive divergence since May, so there is a longer trend we are looking for, not yet, but we do expect it to materialize; there's always a reason why Wall Street sets up cycles like these, for instance, push prices higher and sell in to strength and demand, most likely there are too many shorts on the same side of the boat and Wall St. doesn't make money trading with you. We make money trading with them!

Here's a closer look at the 30 min chart making the top VERY clear as well as the recent longer term positive divergence, we do have a local negative divergence within this leading positive 30 min, but that's part of our trend expectations. 3C should let us know when to move in and out of positions to take advantage of these different trends. Above I mentioned a bull flag that nailed the absolute top, although it took 5 days or so and was a 3.5% advance (it may not have seemed bearish at the time), it ultimately may have called the final top in AAPL.

Lets look at the longer term...
 This 2 hour 3C chart shows when we went short AAPL earlier this year in Q1 and when we covered at the May lows. The May lows also turned out to be the large accumulation area we had anticipated so smart money could sell in to higher prices and demand, this original position may have been fairly large, but nowhere near as large as the distribution the uptrend allowed. The 2 hour leading negative divergence at the September top was as clear as it gets. On this chart notice our 30 min positive divergence doesn't show up here, that's because the 2 hour chart shows much larger money flow than a 30 min chart, while there was accumulation for a move up, it was not so much that it hit the 2 hour chart so we know it's not likely to be a primary uptrend.

Finally this 5-day 3C chart of AAPL again shows some interesting divergences way back to 1984, the first red distribution arrow at the far left may seem small, but that is a 16 month divergence, after that a year and a half positive divergence that sent prices up 170% over the next 6 months! We can see some large accumulation areas in 1997-1999 and 2001-2003, we haven't seen accumulation that size since, by late 2009 distribution of these large accumulated positions were being distributed in to demand and fantastic profits, The leading negative divergence really gets sharp through the parabolic price move during 2012, this is by far the largest distribution stage on the chart, this is what drives our primary trend outlook, perhaps even a secular trend. Luckily , just as we can see several different trends forming high probability trades now, in the future AAPL will not move in a straight line, counter trend rallies during bear markets or primary downtrends are some of the sharpest, largest, fastest rallies you'll ever see. We should be able to take advantage of those trends as well as they develop.

Brandt Uses Worden's TeleChart and StockFinder 5 Exclusively

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