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Stockhaven’s Market Take 2/7/13

Indexes were in danger of suffering their worst losses of the year before catching a bid just before 12:00 pm est and marching their way off session lows to suffer slight losses. The Dow Jones Transportation index even managed to close at a new all time high. Being as I was short coming into today, I rewarded myself by takings profits when my SPY puts hit $1.70. I then ended up buying back the puts in the $1.30′s as SPY rallied upwards the rest of the day. The reason I took profits in the first place is because the VIX was up over 7%, and I thought that was too much of a gain for one day given the S&P500 was still above key 1,495 support. 

On a net basis though, I liked that the bears showed the ability to break 1,500 and get close to testing 1,495. I also like that the VIX ended the day pretty much flat, even though the indexes still finished lower. In addition, today’s range of 14 points in the S&P500 is again relatively wide compared to the ranges seen most of the year so far. Why is that important? Because wide ranges imply volatility and seeing this action with the VIX below 14 puts the better risk reward on the short side of the trade in my opinion.

So with a new day in the book, I have new criteria for my short trade (I believe you should always be making adjustments to your initial plan as certain criteria are met or not met):

  • I want to see the VIX avoid 5-7% rises unless it is with SPX breaking 1,495
  • Want SPX to remain below Wednesdays close of 1,512
  • A 1,495 break in SPX within the next 4 trading days

Looking for some bullish action? Look no further than AAPL, which rallied sharply the last half hour of trading today to settle at its highest close since its post earnings beat down. Here is what I had to say 2 days ago:

“Yesterday AAPL closed lower for a 4th day in a row, something it had only done twice since last May. That prompted me to suggest AAPL might be able to do something else it hasn’t done in a long time, such as close lower a 5th day in a row. Well I was right about AAPL doing something it hadn’t done in a long time, it wasn’t to the downside. AAPL was able to have its 2nd best day of 2013. If you factor in that AAPL wasn’t bouncing off a level that represented a 1 month closing low, it was actually the stocks best day since September 2012. Moving forward AAPL looks as if it will attempt to fill its post earnings gap down, leaving us with an upside target of $483. If I am right, there is no reason for AAPL to go back below $450.”
-Stockhaven’s Market Take 2/5/13 

Sure enough AAPL avoided going back below $450 and also avoided more than 1 days worth of sideways consolidation. Today’s rocket ship like rally is a good sign for the bulls and leads me to maintain my belief that $483 is in play. Even better, AAPL has now experienced 4 consecutive higher highs and higher lows in a row, its best streak since November. In addition, AAPL hasn’t closed lower 5 months in a row in at least the last 10 years (it closed last month lower for the 4th month in a row with a closing price of $455.59) so things are lining up for a continued move higher. Be alert though, AAPL has shown us that recent bottoms shouldn’t be trusted and a move back below $460 will have me calling today’s rally into question.

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