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Red Dog Reversal in Apple (AAPL): Where Will it Lead?

Scott Redler and Victoria Haddow
Dec 17, 2012, 7:28 PM


Before-and-After: Today's 80/20 Red Dog Reversal trade in AAPL

Before the market opened today, Apple (AAPL) was trading all over the map. It dropped as low as $496 before rallying narrowly into positive territory by the open. After very heavy action in the stock last week, it was hard to have an edge either direction. Without a clear-cut set-up, it was hard to short a stock that was down $50 last week, but also hard to get long such an under-performer. The new point of reference was $505.58. AAPL saw a quick push lower through that level, and turned into an 80/20 Red Dog Reversal strategy when it traded back up through it. Stops were then placed at the morning low of $501.23. The chart below was tweeted around 11:00am ET to alert traders about a potential reversal. The key for AAPL today was its ability to build on early morning strength.

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Apple showed commitment throughout the session on a 5-minute chart. The first entry was $505.58 and once AAPL held above that level, it gave traders another entry once it broke above the flag pattern at $508. AAPL closed the day on highs, up 1.77% and in the gap from Friday that started at $518.13. Today's action is constructive as it relieves some of the oversold pressure on this stock.

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The AAPL Red Dog Reversal provided a great cash-flow trade, but what will it lead to? The stock now needs to now build on that intra-day strength and show commitment on the daily chart. At this point, AAPL is a broken stock and has a lot to prove going forward. Tomorrow's action will be key to judge the overall validity of today's move.

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*DISCLOSURES: Scott Redler is long AAPL

Last Updated ( Thursday, 03 January 2013 16:17 )
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