I explained yesterday that the majority of the time, any market making orderly multi month highs (no blow off top), will trade an orderly decline off the initial high and then attempt a rally. If that rally fails and makes a lower secondary high, then short positions are somewhat less risky. This is the usual pattern — and it applies to any traded equity or commodity. So when market General AAPL came into the 177 -178 support area I identified two weeks ago, I expected some bounce from there. But while AAPL has held that support, it hasn’t been able to rally. And after today, AAPL looks to be losing its grip and along with that comes risk of downside acceleration. These are the times when “oversold” can very quickly become very, very deeply oversold. There are a number of stocks falling into the category of risk of downside acceleration, but AAPL is by far the most important. Some stocks like Citi Bank, and all the stocks that got killed after earnings have already started or are in the midst of downside accelerations.   

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The market really looked like it wanted to make a stand yesterday. So much so I covered my NKE short hoping to reinstate higher. I made 60 cents profit on a 2.00 initial margin. A very tough decision as this spread would pay $4 profit on a move below $104 in NKE. I am watching for a place to get in again. 

It’s very easy to get the feeling here to just want to “short something”. The paradox we are in here is that if you have acted on that feeling in the past (and really who hasn’t) we know it mostly doesn’t work out. So I opted for caution today, and will be PATIENT until I can see a lower risk trade set up.  

Thanks,

Joe