We’re kicking off the December edition of 20 on 20 with a look back at AAPL. Last month we predicted range-bound trading between $520 and $595, and we pretty much nailed it. The high since a month ago was $594 and change, and the stock tipped below $520 only once, late last week. Anybody who placed an iron condor on that analysis is very, very happy right now.

Looking forward, we see $500 as a continued support line. It’s been nearly touched twice, and both times resulted in a quick $20 bounce. That’s a good sign for bulls desperately clinging to the stock, waiting for a return to the 600’s. While that may not be in the cards, it’s a possibility. We see the 200-day simple moving average as a resistance point, as well as this descending trendline that forms the top of a triangle. Look at the chart to see what we’re talking about.

In general, we’re neutral to slightly bullish on AAPL, but we wouldn’t be surprised to see a little stumble coming out of the gates in 2013. If you’re looking at entering trades now during the holiday calm, we’d advise you to keep your volume lower than usual for now.

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AAPL has been giving traders fits lately, at least those who have taken any real bullish stances in the past few months. We’re looking hard at this chart, particularly today’s move, and deciding what to do next. 

The lowest point from the previous bottom was $505.75, and we’re within a kitten’s whisker right now, less than 1% away at $510. Given what AAPL moves in a day it isn’t hard to see this being broken early next week, or even later in this trading session. 

Right now we’re waiting to see if the bottom holds, and if so, we’ll be looking at new trades in AAPL next week. If you’re not already an Options Strategy Alert member, you can sign up here to make sure you don’t miss anything!

Here’s a nice look at the year-to-date chart of NASDAQ ETF QQQ, the main tracker of the technology industry in the American markets. We’re in a bit of an interesting spot in tech stocks - after AAPL crashed enormously, then recovered somewhat, the market seems to be a bit unsure of what to do with this industry. 

As you can see here on the chart, QQQ is hanging out right on top of its 200-day simple moving average, a sign that the market feels like the industry ETF is priced fairly. There was a big of a jump today, pushing the price above the 50-day SMA for the first time since October 9th, more than two months ago. Bulls should see this move as encouraging, and we’re inclined to agree. 

We think that QQQ may have another $1 move left in it before the end of the year, and could easily see a nice push as holiday-season sales push tech companies upward through the end of the year. Even without a big push upward, it’s hard to predict a significant drop in the near future based on this chart. 

AAPL is back for another test of 520. In theory, the more a technical level is tested, the weaker it becomes. Think of it like a tree trunk getting hit with an axe..the more hits, the more likely it is to break.

For now we still favor bullish strategy on AAPL, but if we see a twi day hold below 520 we will shift to bearish sentiment with a quickness.

Given the bullish lean (for the moment) coupled with high implied volatility levels, we like selling AAPL Jan13 500/505 Bull Put Spread here. That said, we currently have no position.

Finally, 20 on 20 covers everybody’s favorite stock: AAPL. Today’s been a weird day - when we looked this morning we were ready to talk about the 200-day simple moving average as a source of resistance, and it’s been proved more quickly than we anticipated. It seems like $595 is a legitimate resistance point in the short term (or so today’s sellers would have us believe) and we’ve already identified $520 as a support level (see chart above). 

So what does this mean? Well, it may mean that the best trade here is an iron condor, using $520 and $595 as the short strikes. It’s always possible that AAPL could move 100 points in either direction at a moment’s notice, but we’ve got to trade something, and this action is too strong to ignore. We’re definitely interested in finding a trade, and the IC is as good a place to begin analysis as any. 

Beyond that, we could use today’s drop to enter some more bullish trades, if we really feel confident that this drop is temporary. There are more than a few people out there doing exactly this - loading up at lower prices and getting ready to exit after a nice spike. It already happened once, as that’s probably what the selling at $595 was today - people exiting profitable trades (or getting out of old positions at breakeven).

As our subscribers will tell you, AAPL is a frequent target of our attention… you might even call it the “apple of our eye”. If you sign up for our Options Strategy Alerts, you’ll get all the trades (and, unfortunately, all of the puns). Enjoy! 

Not to be hard on AAPL, but this morning we’re seeing another down day in everybody’s new favorite bearish play. We’ll continue to see $525 the next relevant support level until it’s broken. Right now options implied volatility is pretty smooth across the next few months, meaning that this move doesn’t seem like a short-term thing that will drastically change soon. If anything, it seems like traders are planning for AAPL to stay down in this $540-$560 range for a little while longer. 

We’re still looking for ways to take advantage of increased volatility while protecting ourselves from a bigger downward move. Right now it’s still looking a little unpredictable and we’re staying away from new trades, but you may see us post a new credit spread for our members soon. Additionally, if we see a move coming it might be a chance for a quick directional calendar or butterfly trade. 

Members, stay tuned! And if you’re not a member, you can become one here! 

Take a look at this chart of AAPL. From 700+ to 550, blowing through multiple support levels, on the way, and with no bottom in sight. Or is there? $520 looks like the next reasonable place to draw a line, so we did - but beyond that, where does Apple’s freefall stop? Post in the comments, we’d sure like to know! 

While we wait for AAPL to tell us when it’s done losing value, we’re carefully considering trades at each supposed support level. Right now we’ve got a few positions we’re managing for our subscribers, but it’s unlikely we’ll put any new ones on until our friend here establishes a new range.  

We just noted a bearish setup in DIA that has yet to be validated. Well here’s a bearish setup in another major indice, QQQ, that is valid and in play.

QQQ has formed a head & shoulders pattern (gray ovals) over the past two months. Yesterday is broke below neckline support (blue line), which validates this pattern. The measured move (pink rectangle) takes QQQ to 65.50, which puts it on on 1-year support (purple line).

We missed the initial break, but will be watching for a retracement to the 68.00 price area to short into.  An AAPL retracement to 660 as mentioned in this article would certainly help that cause.

All in all the indices are noting continued bearish price action, but we are expecting a few upside days which will present excellent bearish strategy entry opportunities.

We see three cases for AAPL based on the chart above (click to enlarge)…

Best Case: AAPL bottomed with today’s low of 623.55

Middle Case: AAPL will retrace to 650-660, then complete the head & shoulders (gray ovals) measured move which takes the stock to 600.

Worst Case: AAPL will complete the measured move pertaining to the 1-year uptrend. The pink rectangle represents the point at which AAPL was furthest away from the uptrend. The height at that point was 175 (640-465). A 175 point downside move from the 650 uptrend break price would take the stock down to approximately 475. 

We think the middle case scenario is most likely, but as you know anything can happen. We are looking for a retracement to 660 in AAPL, at which point we would certainly put on a bearish options strategy.

(click image to enlarge)

1-year uptrend support break + head & shoulders neckline support break could mean AAPL 600 very soon.

Apple’s been all the news the past few days. After pushing past $700 and nearly doubling it price over the course of a calendar year, we’ve seen an 8% sell-off to the $655 range. If you got long at $700, it’s not happy news, but in general this may not be a bad thing for bulls. As you can see on the chart, AAPL is resting on its 50-day simple moving average now, and is near a long-term support level. We’ve already sent a trade idea to our premier members, and there may be more if see another opportunity. 

AAPL is an amazing company and an equally amazing stock.  Regardless, the current price level should be looked at as a profit taking opportunity in our opinion.  AAPL is a previous all time highs resistance, which could very well result in heavy profit taking and short side pressure.  At this level, we favor taking profits if your positioned bullish in the stock and positioning bearish if you have no position. 

To keep it simple, let’s say we are holding a position in the stock. We would take profits here.  If AAPL manages to break & hold above 640 all time high resistance, we would simply buy the stock again having missed out on a few points…no biggie. If AAPL dips, we would start buying again at 620 (not all in), and again if it pushed to 600.  In the event it went to 575, we would likely be all in again.  So in this example you risk missing out on say 10 points of upside to avoid partaking in 20 or more points of downside.  Makes sense to us.