SSS - Gravity and the Falling Apple

Published : December 5 2012 at 10:49 ET

We have discussed Apple (AAPL) as a short-sale target on this rally right up into the confluence of the 10-week and 40-week moving averages, which have been running slightly below the corresponding 50-day and 200-day moving averages. We also noted the "black cross" in our Pre-Market Pulse piece on Monday morning as AAPL was pushing into the 10-week line. With the stock blowing to pieces here, we have to ask whether all the potential bottom-fishing buyers in AAPL are now in the stock, essentially creating a situation of "trapped longs" in the stock.

The big question now is whether one should hold out for the "hero trade," with the expectation that the stock is going to test its prior low at 505.75, or to set a percentage profit objective. Ultimately this is up to the trader based on their own risk tolerance and preferences. Taking partial profits on the way down may be another way to handle this, but with the stock coming apart here early in the trading day traders should keep their cool and figure out whether and how they will take profits.

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