Apple Shocks the Shorts

Jan 9, 2008: 5:57 PM CST

Apple Inc (AAPL) dealt some pain to traders who were short Apple stock or options today with a rambunctious end-of-day rally that took price where the proper ‘short-entry’ occurred.

Typically, you want to short moving average (or support) breakdowns at the point of confirmation, or break-point, which would have been just above $180.

My guess is – if you’re like me – that you wait a day or so before entering just to make sure that this break isn’t just another whipsaw that will steal potential profits and play out as another loss.

Maybe yesterday’s action and market weakness was enough confirmation that it was time to start shoring stocks and you chose Apple, with its nice breakdown beneath a key trendline and moving average. You shorted near yesterday’s close around $170.

You felt great this morning, but took heat throughout the day and by the close, you were down $8.00. Yikes! Did Apple take a bite out of you?

These things happen. That’s why trading is more akin to a game of probabilities, rather than certainties.

Not every trade works out. Not every break above resistance or below support works in a major trend that you’re afraid you’ll miss out on. Sometimes you have to take your stops and move on.

Other times, you’ll enter, then the market will ratchet against your position, teeter very close to where you placed your stop, and then take off in the direction that you expected. Unfortunately, this seems to be more common than people would like to admit.

Nevertheless, if you are short Apple, your stop should be somewhere between $180 and $185 and – I hope – you didn’t “load up the boat” with puts.

Treat each trade separately and try not to play for the elusive “big win.” Stick to your plan, take heat when it comes, and don’t panic out.

Oh, and try to have fun!

3 Comments

3 Responses to “Apple Shocks the Shorts”

  1. jason Says:

    I like the plain and simple analysis.

  2. ainkurn Says:

    These momentum stocks are hard to short sometimes. There is so much residual interest in them that any little blip in the market could result in a big move up. You have to be prepared for these or you will be trampled by the bulls.

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