NEW YORK - OCTOBER 14
Apple (AAPL) has fallen to fill the gap from late July at $585.83, erasing all of the almost $120 move higher to just above $700.
In traditional technical analysis, all gaps fill. In practice, most but not all gaps fill. After a gap is filled, the stock is presumed to enter a support level and based on the traditional technical analysis should not fall much farther. However, my 30 years of experience shows that if the support after a gap fill does not hold, it is extremely negative for the stock.
The coming hours and days will tell us if the support will hold. The chart shows a comparison of Apple with ETF (QQQ) which represents NASDAQ 100 on a 15-minute chart. The chart shows QQQ significantly outperforming Apple. When a leading stock such as Apple drastically underperforms, it is a sell signal.
Previously I wrote here on Forbes about a sell signal on Apple arising from the head and shoulders pattern. With the benefit of hindsight, this signal has worked out exceedingly well.
Just prior to the head and shoulders signal, heading into iPhone 5 launch, I warned Forbes readers of an ‘outside day’ in Apple’s chart in my column Ominous Chart Pattern Precedes iPhone 5 Launch .
The obvious question readers may ask is, “Nigam, why are you still long Apple?”
My position in Apple is long from $131 and has been a long-term investment position, not a trading position. Although the two patterns were given a small weight from an investment perspective, these patterns helped us to have our finger ready on the trigger to take partial profits. As a result, within seconds of Apple's earnings release, there was no hesitation in making the call to take partial profits in Apple.
My method advocates long-term investments supplemented by short-term trades. All investors are well advised to handle long-term investments separately from short-term trades; in my book, confusing the two is a cardinal sin as it reduces returns and increases risks.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here and get email notification when I publish a new article. Full disclosure: Subscribers to The Arora Report are long Apple from $131 and have taken partial profits at $360, $525, $629, $568 and $610.
