AAPL Retraces to Support Zone

May 22, 2008: 10:04 AM CST

Apple, Inc (AAPL), which has been on yet another amazing price run for 2008, recently retraced to its sharply rising 20 day moving average, which sets up a potential low-risk entry for traders. Let’s see this zone:

The last time Apple retraced to support was near April 14th, which set up a ‘confluence of support’ trend retracement entry.

These signals are popular for traders and even longer term investors because they provide low-risk entries into a strongly trending stock.  The stop is placed a comfortable distance beneath the key moving average while the profit target is often much higher than the risk (in dollars or percentages) taken by the usage of the stop-loss price (which, in this case, would be near $175).

Although we can never know which trades will work, this sort of structure creates edge even if 50% of the trades fail.  The edge is generated by the amount gained with the winning trades vs the smaller amount lost each time with the losing trades.

Notice on the chart that the recent retracement was preceded by a developing negative momentum divergence.  Momentum divergences warn of retracements only, and do not signal imminent trend change.

Continue to watch this powerful stock for potential clues for the broader market.

Comments Off on AAPL Retraces to Support Zone

Comments are closed.