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A is for AAPL

December 4, 2006
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For the first post of this blog, I thought it fitting to start with AAPL. Not only is it the first stock on our list in alphabetical order, but it is among the most closely watched and heavily traded stocks out there at an average of about 23,000,000 shares a day. Take a look at the options chain and you’ll see very good numbers in the Open Interest column. A market like this with so many eyes and players in the same pit, it is assured to be priced to perfection and with nice, tight spreads between the bid and ask.

Have a look at this article from thestreet.com. Reading that and looking at the chart almost makes one feel like a moron for not already owning the stock. Even as recently as 11/9/06 we had a buy signal with the investools method – three green arrows and a close above resistance. A few days earlier, however, would have been a reasonable buy too with a support bounce off the MA.

Let’s take a long term look. Here’s a 10 year chart. (Click chart to see it bigger)
Here’s a 5 year, weekly chart:
Two weeks ago it broke above the resistance of its all time high to a new high. The average is lower than the weekly average, but it was a short trading week around Thanksgiving. The following week was something of a tug of war on higher than average volume. After opening the week higher, it trade lower than the close of the previous week and then pushed back up off the lows to close slightly lower than than the previous week. A test of new support seems needed. But will 100 act as a magnet?


Now for the grand finale, the daily chart. It looks like the stock could need to come in to test support in the 86 area. But if it breaks overhead resistance, it seems likely that the allure of the 100 level will lead traders and investors to take it there quickly.


There have been a lot of very good buy points in this rally since July. Of course, hindsight is always 20/20. Remember, on a trending stock, the MACD is the more significant indicator to watch.
Though it does seem due for a pullback now, notice the sideways action over the past week on higher than average daily volume. The past three days, in particular, show some bullish resilience with buying off the lows of the day.

Anyone want to chime in with a potential trade here? Or the trigger for a trade?
Though I’m still new to this blogging thing, it should be set up to facilitate comments.

See you in Edison.

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4 Comments leave one →
  1. Anonymous permalink
    December 4, 2006 8:03 pm

    Great idea. Great stock to examine in this way. I’ve not attended meetings due to geographical distance, but read all the posts and find them useful. Thanks for the blog site.
    Nancy DV

  2. Jane permalink
    December 4, 2006 8:16 pm

    Matt,
    This is great. Welcome to Blogging.
    My thoughts: I’m still cautiously bullish on this. With that said,
    I do think it might start to head sideways for a bit. It does have some volatility with it being so dependent on holiday retail news as we saw last week. With that said, based on the time of the year, I don’t think it will go below the 86 support level any time soon supporting my cautious bullish attitude. (Hmm… sell a naked put at 85? even a 80/85 Dec bull put would give you a quick 3% return for 2 weeks time)

    Alternatives for playing? Hmm… well if you are bullish, a nice quick Dec 85/90 bull call spread would give you a 19% return in 2 weeks as long as it stays above 89.2. So it can go up, stay the same or go down a little.

    Longer term I thought about doing a leap and selling covered calls – but the premium for the Jan 08 leaps is steep. With that in mind though, I think I see a nice SAFE option play for beginners in our group (Diagnal I think?). Buy Jan 80’s @$13.10, sell Dec 95’s @ .65 (cost basis now 12.45). IF it goes up and you get called out @ 95 in 2 weeks, you end up w/2.55 in profit (20%) of if the math works, buy it back and realize the gain on the 80 call. If not, you still have a slightly longer term option in the money w/more than 6 weeks time to play with!

    Of course, as I wrote this, it just went up .40 cents!
    Cheers,
    Jane

  3. Matthew Curran permalink
    December 5, 2006 7:31 am

    Thanks for chiming in Nancy and Jane. Glad you like the blog. We’ll see how much I can keep it active with new stuff.
    I like you’re thinking, Jane. It’s all about doing the math and figuring out what’s there for you in the options chain considering what you see on the chart. Interesting to note, though, that there’s no free lunch. With so many people trading this and looking at it, it’s just impossible to cut a corner and get around taking on risk for the potential profit.
    I also like looking at potential diagonal spreads. I think there’s great merit in that approach. However, in this case, the example you propose is probably more risky than it’s worth. There’s not really a clear support level immediately below us that would justify taking on that risk. It could be a 20% gain in two weeks if it goes through 95. But I dont’ really see reliable support until back at 86. So that would be a loss of more than 20% for sure(probably double that) before you really know to get out. Probably not a good enough risk/reward scenario to justify the trade.

  4. Paul B. Tuabman, II permalink
    December 5, 2006 1:48 pm

    Great work with the Blog!

    I attended a few meetings in the past prior to teaching a computer course that meets Wednesday nights. Come January, I will be back!

    Thanks again!

    Paul T.

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