A reader writes again
I am way behind on my reading, including email messages. Thus, I miss timely and interesting notes such as the one that follows. At this point, the writer's questions and comments are past their shelf life, so I will not comment. Do note, however, this embedded insight... "the other losers were more than compensated for by these big winners."
That comment is important: you need not be profoundly correct on each and every investment; your objective however is to seek continually the long term winners. Some investments will lose money, big or small, and some investments will make small profits; it is the one class of investments -- long term, hugely profitable winners -- that you seek. Keep trying (investing); failure (being wrong) is part of the process.
The note...
At your convenience, could you please elaborate on the term 'trader's break'? I can see that AAPL may needsome rest here after a big run, but the $50-54 range seems to be a strong support zone, and the 50-day SMA,which is currently at 51.21 and still sloping up, also lies within that range.
I'm speculating that AAPL may, at worst (if the market doesn't tumble), get a $5-6 'haircut' by falling backto support at the 50d SMA. The day after its most recent earning report, it gapped down well below, but closed well above the 50d on huge volume, and the big run the next day was also on very high volume, which showed evidence of great institutional support. A $15 'discount' means it would have to fall all the way back to the vicinity of the 200d SMA, and that seems to be a much more remote possibility at this point, in my opinion.
The caveat is that I'm discussing these numbers relative to the current stock price and its corresponding 50d and 200d SMA levels. I understand these levels will change with time, and also depend on the nature of the decline (gradually vs. abruptly), so please don't take the statement "fall all the way backto the 200d SMA" literally. The point I'd like to emphasize is that, with my limited knowledge on TA, I just can't see how a leader such as AAPL pulls back 15 points from its recent high, unless the market is really lousy, or some bad news comes about.
Given the current 'darling' status of AAPL among Wall Street institutions, I'm guessing that they may rush in once again to defend and/or pick up (more) shares at the 50d 'bargain' price if the stock would get there, unless the market keeps going down from herewith no 'year-end rally'.
From a contrarian point of view, the fact that most people, especially those in the media, are hoping/calling for a rally may not bode well for the right, and historically the Nov-Dec period tends to perform pretty well relatively to other times of theyear, so I guess one could make the case for a sell-fulfilled prophecy.
The noticeably increased volatility during the last 2 weeks near the October lows of the indices possibly warns that they are near an inflection point, and may soon resolve this situation, whether up or down is for them to decide. The Oct lows currently still hold with higher lows in the indices since, but it is negative that the Nasdaq is the only major index still above its 200d SMA, and the 30-year bond yield has been trending up steadily since Sept, and has broken to new highs this week.
On the other hand, the fact that the VIX spiked to a 5-month high on the day the indices made the Oct lows, and has since come down, and the fact that the Naz is still above its 200d is somewhat encouraging since it tends to lead strong rallies -- if that chance would come.
Unless long term bond rate would keep rising up from here, and/or the indices break the Oct lows, then revisit the April lows, I just cannot visualize AAPL pulling back 15-point without some bad news for the company. I have no doubt that a ~26% pullback can occur at some point, but betting on it to occur later at a much higher price. I've heard about the recent lawsuit concerning the iPod nano's screen, but thought that news was already absorbed. Of course I can easily be wrong, and this is just my wishy-washy attempt at defending my 'beloved' AAPL, although I've read somewhere: "Don't fall in love with, or marry your stocks!"
That may be true if one is a short-term trader, but not necessarily so for long-term investors. After all, how could one hold a stock for a very long time without 'loving' it, especially with a high performance one, such as AAPL or GOOG? I argue that the consequences of 'marrying your stock' are of no significant relevance in this case; it's one's conviction, and one must prepare and accept that one can be wrong, and deal with the outcome accordingly.
If AAPL breaks its 50d on high volume I may sell a portion of my current holding. Fortunately, I don't have to make another attempt to defend GOOG, since this rocket has clearly lifted off above the earth's atmosphere and seems to be heading for the moon (rational exuberance? :-) I've become relatively immune to 'short-term overbought' or 'waiting for pullbacks' arguments when it comes to rockets such as GOOG, CME, or SNDK. The initial support at 320 that Mr.Dorsey Wright mentioned hopefully won't be revisited for a long time.
My oldest holdings include AAPL, GOOG, CME, SWN, VLO,and a few housing stocks that were no longer in my portfolio but did bring substantial gains. I had bought them long before I knew about TA, solely based on my perception of their 'values' from the information (purely fundamental) I got at the time of purchase, and I'm glad I 'married' them -- the other losers were more than compensated for by these big winners. Fortunately, now with my newly gained (albeit still very basic) knowledge of TA, and help from world-class traders/investors such as you, The Deipnosophist, and Dan Zanger (he inspired me to study TA), I've also been starting to learn when to'separate' or 'divorce' them if and when necessary. :)
Thanks,
Tom
That comment is important: you need not be profoundly correct on each and every investment; your objective however is to seek continually the long term winners. Some investments will lose money, big or small, and some investments will make small profits; it is the one class of investments -- long term, hugely profitable winners -- that you seek. Keep trying (investing); failure (being wrong) is part of the process.
The note...
At your convenience, could you please elaborate on the term 'trader's break'? I can see that AAPL may needsome rest here after a big run, but the $50-54 range seems to be a strong support zone, and the 50-day SMA,which is currently at 51.21 and still sloping up, also lies within that range.
I'm speculating that AAPL may, at worst (if the market doesn't tumble), get a $5-6 'haircut' by falling backto support at the 50d SMA. The day after its most recent earning report, it gapped down well below, but closed well above the 50d on huge volume, and the big run the next day was also on very high volume, which showed evidence of great institutional support. A $15 'discount' means it would have to fall all the way back to the vicinity of the 200d SMA, and that seems to be a much more remote possibility at this point, in my opinion.
The caveat is that I'm discussing these numbers relative to the current stock price and its corresponding 50d and 200d SMA levels. I understand these levels will change with time, and also depend on the nature of the decline (gradually vs. abruptly), so please don't take the statement "fall all the way backto the 200d SMA" literally. The point I'd like to emphasize is that, with my limited knowledge on TA, I just can't see how a leader such as AAPL pulls back 15 points from its recent high, unless the market is really lousy, or some bad news comes about.
Given the current 'darling' status of AAPL among Wall Street institutions, I'm guessing that they may rush in once again to defend and/or pick up (more) shares at the 50d 'bargain' price if the stock would get there, unless the market keeps going down from herewith no 'year-end rally'.
From a contrarian point of view, the fact that most people, especially those in the media, are hoping/calling for a rally may not bode well for the right, and historically the Nov-Dec period tends to perform pretty well relatively to other times of theyear, so I guess one could make the case for a sell-fulfilled prophecy.
The noticeably increased volatility during the last 2 weeks near the October lows of the indices possibly warns that they are near an inflection point, and may soon resolve this situation, whether up or down is for them to decide. The Oct lows currently still hold with higher lows in the indices since, but it is negative that the Nasdaq is the only major index still above its 200d SMA, and the 30-year bond yield has been trending up steadily since Sept, and has broken to new highs this week.
On the other hand, the fact that the VIX spiked to a 5-month high on the day the indices made the Oct lows, and has since come down, and the fact that the Naz is still above its 200d is somewhat encouraging since it tends to lead strong rallies -- if that chance would come.
Unless long term bond rate would keep rising up from here, and/or the indices break the Oct lows, then revisit the April lows, I just cannot visualize AAPL pulling back 15-point without some bad news for the company. I have no doubt that a ~26% pullback can occur at some point, but betting on it to occur later at a much higher price. I've heard about the recent lawsuit concerning the iPod nano's screen, but thought that news was already absorbed. Of course I can easily be wrong, and this is just my wishy-washy attempt at defending my 'beloved' AAPL, although I've read somewhere: "Don't fall in love with, or marry your stocks!"
That may be true if one is a short-term trader, but not necessarily so for long-term investors. After all, how could one hold a stock for a very long time without 'loving' it, especially with a high performance one, such as AAPL or GOOG? I argue that the consequences of 'marrying your stock' are of no significant relevance in this case; it's one's conviction, and one must prepare and accept that one can be wrong, and deal with the outcome accordingly.
If AAPL breaks its 50d on high volume I may sell a portion of my current holding. Fortunately, I don't have to make another attempt to defend GOOG, since this rocket has clearly lifted off above the earth's atmosphere and seems to be heading for the moon (rational exuberance? :-) I've become relatively immune to 'short-term overbought' or 'waiting for pullbacks' arguments when it comes to rockets such as GOOG, CME, or SNDK. The initial support at 320 that Mr.Dorsey Wright mentioned hopefully won't be revisited for a long time.
My oldest holdings include AAPL, GOOG, CME, SWN, VLO,and a few housing stocks that were no longer in my portfolio but did bring substantial gains. I had bought them long before I knew about TA, solely based on my perception of their 'values' from the information (purely fundamental) I got at the time of purchase, and I'm glad I 'married' them -- the other losers were more than compensated for by these big winners. Fortunately, now with my newly gained (albeit still very basic) knowledge of TA, and help from world-class traders/investors such as you, The Deipnosophist, and Dan Zanger (he inspired me to study TA), I've also been starting to learn when to'separate' or 'divorce' them if and when necessary. :)
Thanks,
Tom
posted by David M Gordon | 2:22 AM
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