SSS - The Apple (AAPL) "Mosh Pit"

Published : January 8 2013 at 11:08 ET

Yesterday we advised keeping an eye out for a potential "Wyckoffian" low in AAPL as it pulls back and tests its recent lows on lighter volume. This morning right off the open the stock looked ready to launch here as it broke out intra-day to the 531-532 level before it's "Wyckoffian" bounce reversed course. Going into earnings on the 23rd, the stock doesn't seem to have a lot of punch behind it, but it is not clear whether one can get away with shorting the stock now and holding through earnings in the hopes of catching some sort of gap-down move after earnings. If one were to try and test AAPL on the short side, then we think the only sane way to do this is through the implementation of the short-term system we have discussed in our weekly intra-day webinars. A higher volume reversal today would negate any attempts at a "Wyckoffian" low, in our view, and if one is able to gain some sort of downside cushion in AAPL before earnings are announced, then it could be possible to hold a measured short position (say 10-20% of net account equity or less, depending on one's taste for risk) going into earnings since often a head and shoulders formation will finally resolve itself by "breaking out" to the downside on an earnings-related gap.  

Some have asked us how this relates to Cirrus Logic (CRUS), one of AAPL's suppliers, and we would answer that it doesn't. CRUS is not in the same position, technically, as AAPL, since it has already pushed into its 50-day moving average at around 30.50 this morning before reversing course. Thus it is clearly shortable using the 30.50 high as your stop, although one must be aware that any positive reaction from AAPL when it announces earnings will likely show up in a sympathy pop from CRUS. While one can certainly look to short stocks like AAPL and CRUS if the market should begin to show some cracks here, or even on the basis of their own weak rallies on a stock-by-stock basis, we are reminded of a line from one our favorite Clint Eastwood movies: "Do you feel lucky, punk?"

Food for though, yes, but this is a crazy market for crazy times, and when the U.S. government is seriously mulling over the minting of a $1 trillion platinum coin in order to circumvent the debt ceiling in order to pay its debts, alll the while assuring us that it will be "non-inflationary," you've got to wonder whether it isn't their minds that have gone over some metaphorical "fiscal cliff." We hear so much about ceilings and cliffs, but we would like to know exactly where the "floor" is, since that's what we stand on.

Fair disclosure - we are messing with AAPL and CRUS on the short side today, but it is not clear how long we will hold these positions as we could be in and out depending on how they and the market act. Theoretically, the market is "holding tight" in a short flag formation, but that is certainly something the "crowd" knows for sure.

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