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Sunday, March 3, 2013

Obvious Head and Shoulder Pattern, or is it?

The above chart shows what it seems everyone is talking about. The Q's (ETF representing the Nasdaq) are showing a beautiful head and shoulders pattern. We clearly have a head, two shoulders, and a well established neckline around the 60 zone. IF the neckline is reached and IF it is broken (two HUGE ifs),  a very reasonable target would be 50. 

So, should we make a play to short the Q's? The answer should be a screaming 'yes'! But I say: 'maybe'. My problem or reluctance with the above is AAPL. AAPL is a major component of the Nasdaq, roughly 12% of it. AAPL has lost much of its luster, and is down roughly 38% from its high of $700 in only 5 months. Gone are the days of $1000 AAPL price targets, and now it seems every analyst is now trashing AAPL, saying the company is the new Microsoft .  I am anything but a momo trader, and I hate to jump on the train once it has already left the station... why short AAPL here, isn't a 38% slide enough?

Now, I could easily get into a long term analysis on AAPL, both technically and fundamentally, but I will not do that here - Don't have the time, nor energy. My main point, as more of a contrarian trader, is that a bounce is due soon. Sure, it could easily hit 400 before 500, and the technical charts appear to agree with this view - but if AAPL comes out with some big announcement, like say, something about the fabled Apple TV, or some major network agreement... then look out. AAPL could easily bounce and bounce big. 

On the other side of the coin, GOOG, AMZN (and even LNKD & NFLX with their far lesser market cap) are quite extended, and could easily pullback, and pullback big. This at least partly offsets my argument with AAPL. 

So, what am I saying? I believe that the Q's, along with the general US markets, are looking a bit suspect right now and at least a brief pullback COULD be coming, and coming soon - maybe this week. I just don't think the Q's are the best play simply because AAPL has already been so beaten up. Shorting the SPY will, in my opinion, offer a very similar reward with less risk. 

Til tomorrow, take care folks!

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