Catching the Wave: Apple Teetering

I can't wait to buy the Apple (AAPL) iPad 3 and am so excited for its release, even though I can't figure out what I'll use it for. I'm even OK with being part of the herd on this one -- after all, there's no downside risk to herding on the product itself. Worst-case scenario, I'll have a mobile platform on which to write Real Money Pro articles no matter where I am. But, when it comes to the stock itself, there is downside risk in the shares up at these levels. The daily chart illustrates this below. Apple (AAPL) -- Daily Source: eSignal View Chart » View in New Window » Sure, there is a lot of talk about the $500 price level, but according to my decision support engine, the hype is a warning to exit, rather than enter at this lofty level. At $500, Apple is 3.5 standard deviations above the 200-day moving average. While there is room in the Elliott Wave pattern to drop into $485 +/-$5, followed by a finale climb into $530 +/-$5, that price level would be four standard deviation bands above the 200-day. Statistics show it's not possible to trade either the three- or four-standard-deviation level for extended periods of time, meaning the clock is now running out before we see a price reversal that takes Apple back toward $455 +/-$5. At that level, the two-standard-deviation band might offer initial support, once a turn arrives. As both my white and blue paths show, $390 +/-$10 is the area of much stronger support that is likely to be seen later this year. Stochastics are not expected to remain at this overbought level for very long, making it extremely important that investors trail their sell-stop-loss orders closely below this level. The stock should now close below $480 if my blue path is operative. Apple, then, is my first peak in the doomed house of market vulnerability. My second peak is Priceline (PCLN). In a very similar ending pattern to that presented above, this daily Priceline chart shows an exit window that is set to close before a 15% price decline arrives, with more bearish potential thereafter. Priceline (PCLN) -- Daily Source: eSignal View Chart » View in New Window » While not as statistically extreme as Apple's 3.5 standard-deviation-band departure from the 200-day moving average, Priceline's 2.5 standard-deviation departure is running out of Elliott subdivisions in the next few points. About the same time it approaches the level of three standard deviation bands, near $585, stochastics are set to enter overbought territory. My blue path has a high probability of arriving sooner than later, allowing the $500 +/-$10 support zone to be visited in the coming one to three months. Lululemon (LULU) -- Daily Source: eSignal View Chart » View in New Window » My third peak in the doomed house is Lululemon (LULU) -- the weakest of the three peaks, as it hasn't been able to close above even the two-standard-deviation band for more than one day this year. While I showed this chart with the blue path recently, the last few weeks is just an extension of the same ending pattern. This is a fifth-wave diagonal triangle. Elliott terms it the terminal wave that occurs late in the last fifth-wave position in a long uptrend. Here, too, stochastics are now peaking. Their travel to the oversold extreme, which is forecast for the next couple months, will pull Lululemon's price toward $48 +/-$3, with more bearish potential thereafter. Carpe Undo -- seize the wave!

Catching the Wave: Apple Teetering

The stock simply cannot sustain these hyper-extended levels. Same goes for Priceline and Lululemon.

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