Wait for Apple to Ripen

 | Feb 23, 2014 | 6:00 PM EST
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I've been keyed in on Apple (AAPL) for a while now, and the last major level that caught my eye came in at the Jan. 31 lows, which encompassed a number of crucial timing- and price-based parameters.

Apple (AAPL) -- Weekly
Source: Dynamic Trader

On the weekly chart above, you can see that this zone did indeed provide support -- and the stock has rallied $57.64 since it hit that low. Now, once we've determined this is an important level, the target that we first seek out is always the 1.272 extension of the swing into the zone, or the $597.33 area, in this case. We don't always reach our targets, but we certainly shoot for them!

Apple (AAPL) -- Daily
Source: Dynamic Trader

On the daily chart, meanwhile, we were watching Fibonacci-based timing analysis. These time cycles -- which pointed to a likely reversal between Jan. 28 and Jan. 31 -- came due at the same time that the price support was being tested. The actual low was made on Jan. 31.

Now that I've reviewed why I had been looking at the buy side in Apple, let's talk about how you can use this information.

While many Fibonacci trade zones will set up in this manner, a great deal of them are violated on a daily basis. As longtime readers know, in order to filter out the ones that are unlikely to hold, before I enter the stock I'll typically keep an eye out for what I call a "trigger." Of course, while this raises the odds for success, we'll still see some false triggers and get stopped out of trades. That is just part of the business.

In any case, for swing trade entries in Apple, I like look for a trigger on the 30-minute chart -- and I want to see two things happen here before I'll pick up shares. First, the eight-day exponential moving average should cross above the 34-day EMA and, second, we must see a "shift in pattern" whereby the stock takes out a prior swing high. If both of these things take place, that would tell me it's worth placing a bet against the trade setup zone.

Let's go back to a 30-minute chart and see where the first buy trigger fired off.

Apple (AAPL) -- 30-Minute
Source: Dynamic Trader

I've highlighted the area above where the first buy trigger fired off -- when Apple took out the $503.24 zone. At that point, you could have entered at $503.25 or higher, or you could have waited for the pullback after the initial trigger. So let's say you could have been in around $503.50, or maybe around $499 if you waited for a pullback. At that point, the risk would have been defined below the Jan. 31 low, at $493.55.

Also on the above chart, I've indicated where I typically suggest ditching the trade. I recently posted this concept of a "symmetry break" regarding Apple on Twitter. When this stock broke the symmetry of the prior swing upward -- basically, when it declined for more than $9.69 from any new high -- I thought it was a good idea for shorter-term traders to exit.

So my recommendation is to stay on the sidelines for now, but to be prepared to reenter somewhere above the Jan. 31 low if a buy signal resurfaces. I'm not seeing any at this point, so I'll stay patient at least until a 15-minute chart suggests another relatively low-risk bet. If I do see another buy trigger, I'll define my risk below the low that was hit before that trigger fired off. If you're trading Apple, I suggest that you be patient, as well.

Please refer here for more information on trade triggers, and here for general guidance on Fibonacci trade setups.

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