Back in 2007, the four horsemen leading the tech charge higher as we formed a multi year top were: $AAPL, $GOOG, $RIMM and $AMZN. In recent months, $GOOG and $RIMM have fallen behind in certain areas, and their stocks have been weak for quite some time now. $AAPL and $AMZN, on the other hand, have been dominant.
One of the interesting things about the mass psychology in the market happens when we see a broad market bullish to bearish reversal. Fund managers and traders look for whatever long plays that are holding up relatively well, and they pile in while the walls around them cave in. Interestingly, when the relative outperformers/last bastions of safety finally start to roll over, that is a sign that we are– at the very least–at the beginning of the end of the correction. Recall in late 2008/early 2009 when plays like $WMT and $XOM rolled over, after having been very good outperformers. Corrective/bear markets eventually get to everything. There are no sacred cows, especially in those places where a large amount of market players think they can safely hide as the market slides.
In the current market, both $AAPL and $AMZN have been hanging tough since the broad market started to fall apart in late April. Both of their respective daily charts, seen below, tell the story of them starting to break down. While there is a sort of taboo about shorting these two stellar businesses, if you are looking to be aggressive, then now would be the time to short them on further market weakness.
Chess,
Great post, but what are you expecting before you go long or short.
are you expecting a break above 1100 to be long and below 1020 to short. how would you play it
Bill
Thanks, Bill.
For me to go long or short, I not necessarily looking for any one number in particular. Rather, to go long I am looking for widespread buying on strong volume by institutions and, just as important, a firming up of daily charts. As you can see, I am not a fan of the loose and sloppy AAPL pattern. They usually fail. Also, the AMZN chart needs some time to heal, if it does at all anytime soon. So, I will be patient.
As far as going short, this has been a very tricky market to find a good short entry for me. The downtrend has been steep and swifter than normal for a correction.
I am content sitting in cash for now.
Still bitter about my poor execution on those two today…
long or short?
I had June 120 Calls in AMZN and with AAPL, I had a July 240/250 Vertical Put Spread… Because I wasn’t home in the morning, I got stopped out of AMZN during the initial decline, and then exited AAPL at days highs because momentum in the morning was nuts. Just poor execution on my behalf, and of course, I took away a lesson from it:
During times like these, don’t trade unless you KNOW you’ll be at your computer!!
I always want to see the death cross make an appearance before I begin a shorting campaign.
Swim with the tide, so to speak.
Excellent point, Alpha.
Perhaps I have too much empty time to fill, sitting in cash. Just analyzing the idea of the leaders rolling over.
When the 50 crosses below the 200, usually most of the dip buyers and bargain hunters begin to move to the sidelines to nurse their craniums, after having been relentlessly pummeled by the downtrend.
Then the bear party gets louder kicks it up another level.
That environment gives you the easiest, fastest money you will make as a short seller. Better than being a bull in a bull market. However, most traders are not patient enough to wait for that time, so they begin shorting prematurely and sometimes end up paying Ivy League tuition for a short lesson.
Ivy league is not necessarily that expensive, but I digress…
I think another good reason not to short these though is just that there are other better risk/reward opportunities out there. Especially in the case of AAPL…. it doesn’t look too weak, or weak enough to short convincingly. At least with AMZN you can tell it’s breaking down.
Yes. Particularly in the case of AAPL, it’s tough to short a stock that has $300++ price targets from analysts, and a lot of buzz on the iPad. Nearly suicide at this point, imo.
Right now, it’s all about balance sheets and maintaining market share in this environment. Better candidates to short are those with iffy balance sheets, heavily in debt, with second tier products and services.
Or, just wait for the death cross, then it’s open season and basically everything is fair game.
Chess,
Thanks for your work on here. Question- What are your thoughts on the behavior of TIE at a time like this?
Excellent outperformer thus far. Daily chart a little sloppier than I’d like to see for a long. Even though it seems like a leader, I would wait for the broad market to act better before jumping on this.