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The trade I’m going to share with you today is not for the faint of heart.
The S&P 500 Index is trading near historic highs and has gained about 15% over the past four months. The Smart Chart Investor model is still long SPY (the ETF for the index). It certainly “feels” like we should have a pullback soon. Unfortunately, “feeling” like something should happen in the stock market and acting on it is not a strategy.
The Smart Chart Investor model has triggered a buy signal for Apple Inc. (AAPL). Fasten your seat belts tight for this one.
I wrote about Apple last summer and discussed the potential for a significant correction. AAPL is down almost 40% since September, so I’d say that qualifies as a significant correction… and the correction may be over.
AAPL has had a nice two week bounce off the highs made in November, 2011. If you look at price action following the November 2011 highs, AAPL just screamed higher.
Apple Inc. (AAPL) – weekly chart
Also of note, we issued a buy signal last week for the PowerShares QQQ Trust ETF (QQQ). This is relevant, as AAPL represents about 12.5% of that ETF. Not a big deal, but yesterday AAPL was up and QQQ was down.
AAPL closed yesterday at 455.72. The first level of risk is just under 400 and the next risk level is just under 350, which would be under the 200-week moving average if it happens relatively soon.
Investing in equities is not for the faint of heart. I have found that very difficult trading decisions are often the best trading decisions. This can be accomplished by accepting the fact that not all trades will be profitable.
When initiating a trade you must have an exit strategy, so you are prepared if the trade goes against you. You must also have an exit strategy to capture gains from a profitable trade. Buying and holding does not address this. Selling is difficult but it must be in your “tool box.”