(The analysis below was shared by Jim Cramer on his show "Mad Money" on September 25th, 2012.)
Historically, the best way to approach Apple (AAPL) has been as a buy-and-hold investor. Every sale has been a bad one over the years, especially if you didn't get back in! If you've held AAPL for the past decade you would have participated in one of the biggest winners in market history.
Although investing in AAPL has been the best approach, there have also been opportunities to actively trade it along the way. A market leader like this can provide opportunities on every time frame. Mutual funds buy it at certain times, hedge funds try to time positions, and traders try to maneuver it to try to generate returns. No matter who you are or what your time frame is, you need to have a defined plan of how you are going to approach the trade.
Back in May we did a segment on CNBC's Mad Money with Jim Cramer on the importance of AAPL for the market, and gave a buyable strategy down around $560. We talked about a $700 price target, in addition to the possibility the S&P hits 1450-1470. This all came to fruition and rewarded swing traders.
First I want to share with a chart of AAPL that is educational, showing the buyable entry levels that we talked about on the Morning Call, blogged about, and spoke about in the media.
Most traders don't take stocks into earnings, they take in the money calls to limit risk. Therefore, they need to look for buyable strategies to get involved in the underlying stock after earnings.
*Buy Pattern #1: The strategy after earnings was when it traded into gap on 7/27. It filled earnings gap in three days, showing power and demand for traders to get excited about. The big gap down after earnings turned out to provide a bargain, rather than leading to further downside.
*Buy Pattern #2: When it cleared its $618-$20 pivot and showed commitment after filling the earnings gap.
*Buy Pattern #3: When it took out its 52 week high of $644 on 8/17. Stocks that take out 52 week highs typically show power and gain momentum.
*Buy Pattern #4: When it reversed in the last hour of the day and buyers took control when they introduced the iPhone 5 on media day, around $665. With AAPL product launches and earnings, you often see traders try to by the hype and run the stock higher heading into the event, and "sell the news." In the moments immediately after the iPhone 5 announcement it looked like we could see another example of that again, but the reversal was a sign of genuine strength.
These were four buyable strategies for traders and market participants, and when the stock hit $700, it was a great time to trim longs into excitement.
However, that was then, and this is now. The iPhone 5 honeymoon is over, and in the last two days AAPL has seen weakness enter the equation. Yesterday the stock showed resilience after a gap down that was sparked by the "disappointing" five million sales of the new iPhone in its first weekend. Today, though, was the day to really take notice, as as AAPL sliced down through its 21-day MA like a knife through butter.
The question everybody wants answered now is: where can I buy back Apple?
As an active trader, you have to be able to periodically check the temperature of rallies and measure market composure. How do we do that? By watching key moving averages and retracement levels. To be a successful active trader, you not only have to be able to identify strong patterns and ride the trend, but you also have to be able to recognize when that trend changes and get out of the way.
We saw a little bit of that today in AAPL. The stock hadn't seen a close below its 21-day moving average since late July, and today that MA posed very little resistance. AAPL now needs to reclaim that 21-day MA in the next couple of sessions or it increases likelihood that the stock will re-test its 50-day MA. The current level of the 50-day MA also coincides with the previous breakout to 52-week highs from back in mid-August, so that would be a neat and tidy area for AAPL to fill back into. The short-term sell signal today was when AAPL broke the previous day's low of ~$683. I am currently flat AAPL and waiting to see what today's action leads to.
The other tech leader that we need to watch for composure is Google (GOOG). GOOG put in an ugly topping tail candlestick today, but actually just closed flat so it's not necessarily game over for the stock. GOOG has been on the move with AAPL, and even outperformed it over the last week. The stock has seen multiple buy prices, most recently when it tested its 21day around $681 and then rocketed to historic highs above $747. On December 13th 2011, I blogged about GOOG as my favorite chart pattern for 2012, and despite a tough start to the year it has fulfilled that promise. I also spoke about the set-up with Brian Sullivan on CNBC.
The final piece of the puzzle is the S&P. Traders will be watching the index to see what levels hold. The big short term level we were watching was 1449-1452, and after that broke today many momentum players will step to the sidelines and wait for better entries. It will be key to see whether the S&P holds the 21-day tomorrow or gets additional downside pressure, which could bring the next level of 1426 into play.
After my technical target for 2012 was already met at S&P 1450-1470, I raised it to 1540-1570 based on the technical Cup and Handle Pattern. I also still believe we can see 1700 by 2015, a statement of mind shared on Mad Money back in the first quarter. However, along the way we will maneuver the action based on intermediate-term trends and patterns.
The bottom line is: let the action do the talking. I sometimes make macro calls on stocks, but when it comes down to itm entries and exits are the key to success on any time frame. Equity markets are far from dead, and there opportunities on every time frame. Keep connecting the dots in order to manage position size and risk tolerance.
*DISCLOSURES: Scott Redler is short SPY