SSS - Watching for "Sir Isaac Newton's Short"

Published : June 14 2012 at 13:32 ET

This may be controversial here, but given that the market is locked in a short "chop zone" over the past six trading sessions, we are looking to Apple (AAPL) as a barometer for the market. We think that if the market has the potential to break down through its 200-day moving average and commence a new leg down, obviously just a probability at this precise moment in time, AAPL would be a type of "index" short with the idea of the stock testing its 200-day moving average, a break down off the 52-week high of 644 of about 26%, well within the parameters of a normal correction and base-building process for a leading stock during a bear mnarket. Keep in mind this remains hypothetical and is based on the market breaking down, hence is a potential tactical short trade to keep in your quiver, such that whatever you are tracking to indicate building weakness in the market, the trade could be made if condition #1 is met: that the market be rolling over with volume picking up.

Otherwise, AAPL could continue building a base along current price levels if the market remains indecisive, and potentially could become a buyable situation if it ever issues a pocket pivot on a move up through the 50-day moving average and/or the 10-day moving average.

We expect to be working this potential trade in AAPL should our indicators for determining whether condition #1 is being met confirm.

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