The news drove Apple’s stock higher in a weak tape for tech. It’s the latest rally in a long climb back from last month when shares briefly dropped below $500 in the wake of a poor earnings report. In the attached video Alphatrends.net founder Brian Shannon says Apple shares are at a critical juncture.
Conceding up front that the “reverse head and shoulders pattern” being formed sounds like technical analysis voodoo, Shannon says the important thing for investors to note is that Apple is on the cusp of reversing a short term downtrend and attacking resistance that’s been in place since the company peaked over $700 in September of 2012.
In technical terms Apple is forming a reverse head and shoulders pattern that will be confirmed if the stock can hold current levels near $540. To Shannon that sets up an attractive risk - reward trade possibility. The idea would be buying the stock here with a stop that would trigger anywhere below $535. That leaves $5 of a risk (barring a huge gap lower) with a potential upside target near $600, if the head and shoulders pattern pans out according to the playbook.
Shannon might be an active trader but his mantra is risk control. “The most important part is to manage risk and raise stops as the stock does begin to move higher and have that initial protective stop in case we’re wrong.”
The advantage of technical in general and stop loss orders in particular is that they take the emotion out of trading. Shannon isn’t promising a great trade, but observing a set-up he says is fit for investors and traders alike.
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