Sunday, June 7, 2009

Looking for "Exception": AAPL, GOOG

I try to look for "exceptions"- stock, sector, index that doesn't move with the flow (whether it's down or up), because I've noticed that those often gives clues to easy trades that may come soon.

I wrote about how I missed GOOG entry and exit several posts ago. I also wrote about the possible AAPL entry 2 weeks ago. (I wish I followed my own advice.) Despite the misses, I've kept watching these two, (former) Nasdaq beta stocks. I say "former", because they don't seem to behave like one any more.

As I said in both posts, I didn't like them because of low volume. Then I started to notice something peculiar in the past 2 weeks. The market goes down, these two stocks remain green. The market goes up, these two stocks go up, but not by much. I mostly watch them on my main stock screen panel, and every trading day regardless of the market direction, these two stocks remained positive. In the past 10 days, Nasdaq went down on 4 days, and up 6 days.

So I called up the charts for both of them after Friday's close. They are 7-month daily charts. Well, well. There is some singular activity going on. First, they almost look identical. Second, both AAPL and GOOG finished 9 consecutive trading days of going up. The amount of increase each day was not very significant for these stocks. It is as if the buyers didn't want to alert the trading public by moving the stocks too much too fast. Although the volume for both stocks is lower than what was once a norm, it has decidedly picked up. Quiet accumulation..?

For AAPL, the last time the stock went up for 9 consecutive days was early May 2007, the beginning of the stock's huge run from $100 to $200 in 7 months. For GOOG, I couldn't find any other instance, except September 2007 when the stock went up 4 consecutive days, paused one day, and then continued to go up for another 6 days. Again, that was the beginning of the stock's climax top. GOOG went from $520 to $740 in two months.

Both stocks are now pushing the upper bollinger band and look stretched and due for correction. If my reading is right (chance may be miniscule, but not zero), however, these stocks are set to go even higher. Significantly higher, as their weekly chart formation (cup and handle) tends to yield gains equal to the depth of the cup. That would bring GOOG to $540, AAPL to $250, PROVIDED THE GENERAL MARKET REMAINS BULLISH.

I decided to take a chance on AAPL via a tiny position in AAPL October call options. If I'm wrong, all I lose is the money I put down to buy the options. The only reason I picked up AAPL over GOOG is that I liked the AAPL's P&F chart: the triangular pennant strongly broken out to the upside. But again, it all depends on how the general market behaves. After all, they are beta stocks which will move with the market in an exaggerated manner.

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