On Wednesday stocks rebounded sharply after rather unfavorable price action with most stocks giving up gains over the last week or so with the S&P 500 closing lower for 8 days in a row after making new all time highs on Sept. 2, the NASDAQ also made new all time highs on Sept. 7 only to slide lower for 5 days in a row as investors locked in profits ahead of a historical challenging time of the year for stocks. Apple (NASDAQ:AAPL) made new all time highs also on Sept. 7 only to give up those gains on high volume dropping 5.3% since and now clinging to the 50 day moving average after losing that critical support level twice this week.
The good news is AAPL was able to close above the 50 MA and has even printed a bullish hammer candlestick which as all one day candlesticks are subjective and should be taken with a grain of salt. Furthermore, one day candlesticks require confirmation before the all clear signal can be given. Yes, I realize the Fed has our back and we should buy the dip as we have been programmed to do however the engineer in me always looks for what could go wrong with this trade.
What could go wrong with this trade? Well, AAPL broke down and has closed below an uptrend support that has been in place since June, forming a rather obvious bear flag and setting up for another move lower, the 200 day moving average support is -10.5% lower and any close below the 146 level would increase the likelihood of a re-test of the 200 MA near 133.5. A test of the 200 MA has historically been an opportunistic place to "buy the dip".
Here's the visual:The options market also saw some fairly large options trades today with what appears to be options traders selling into this bounce and buying in the money put options towards the close today as a hedge or outright short on perceived weakness that could be coming sometime between now and mid October with one investor buying 2000 155 puts expiring in October for more than 1MM in premium and another investor buying 1000 puts with the 150 strike for $405K in premium as a hedge or perhaps an outright short on shares pulling back to the 200 day moving average before the end of October
So, blue skies ahead? Not so fast. Yes, price closed above the 50 MA on Wednesday and may continue to close above that level, for now or at least until OPEX is over then you can expect prices to likely close below the 50 MA afterwards or maybe even before with investors incurring the most losses and (market makers making the most gains) if AAPL can close near 145 on Friday options expiration.
This article was originally featured on Stockoptionalerts.com