Archive for November, 2012

Everyone has been trying to call a bottom in Apple for the past 100 point down move.  Every time the stock starts to consolidate, the bulls come out and say, “It’s forming a bottom.”

But every time they have been wrong, as you can see from this chart:

Why is it that Apple can’t consolidate and form a bottom? Because Apple doesn’t like to consolidate and form bottoms.  It likes to make “V” bottoms, which is exactly what it did today.

A V bottom is significant for a number of reasons:

1)  Participants who have shorted the stock had very little opportunity to cover because of the sudden spike back up (meaning there could still be participants caught short).  Alternatively, when the stock consolidates, and appears to be forming a bottom, many shorts get nervous and cover their positions.

2)  Participants who were picking bottoms by using reference points, have little chance to get long.  Consider the four days of consolidation that we had from October 19th to October 23rd, when the stock had four consecutive lows near the $610 area.  There was ample opportunity for bulls to be picking this bottom. We had a similar consolidation period in the past week in the $535 to $545 area.  Again, lots of bulls scooping up stock.  They were all wrong again.

Stocks move on short-term supply and demand.  When too many participants get on the same side of the trade, the stock will almost always move in the other direction.  Just like the recent spike in Facebook (FB).  There were too many participants banking that when the lockup expired on Wednesday, releasing another 800 million shares, that a flood of sellers would come in and drive the price lower.  The herd was dead wrong again, and the stock spiked higher.

But with Apple’s V bottom today, few participants had a chance to pick this bottom (unless they got lucky), and even fewer shorts had a chance to cover.  It was too quick.  That is why I think we have seen the short-term low in Apple.  The V bottom is finally in.