Shock and Awe is probably what a lot of people are feeling today, as the supports under the market keep crumbling away. What is surprising is that people are surprised, but I guess that is a result of having the highest bullish sentiment amongst market analysts in 26 years. Disbelief that the markets have topped is a difficult emotion to overcome. For InvestorKey the signs were clear, as we discussed the topping process in our Blog starting in mid-December.
Our bearish inclinations lead us to recommend short positions using stops as the preferred entry method. On Jan 16 we shorted the Retail ETF-RTH @ 59.30, then on Jan 23 we shorted Apple-AAPL at 547.70, and on Jan 24 we shorted S&P 500 ETF-SPY @ 181.60, Financials ETF-XLF @ 21.49 and Basic Materials ETF-XLB @ 44.69.
Our Jan 16 Blog discussed what all the analysts were projecting for Apple's stock price - $600, and their fundamental reasoning of their deal with the China telecom company and the potential for future sales growth. We thought that the ascending wedge pattern that developed from early 2013 and broke to the downside at the beginning of Jan was a harbinger of something not quite so optimistic. We stated that we believed the rally from Jan 10 to Jan 16 was a 'suckers rally' and we were preparing to go short. In the meantime, we did short the Retail ETF-RTH that day, because 3 days prior a number of ETFs gave a warning shot that the markets were preparing to tank.
In our Jan 22 Blog titled "Apple Crisped", we stated, "tomorrow we may be on the cusp of some more stocks and sectors breaking down, and even though I am an Apple product lover, I wasn't opposed to making some money from their stock's misfortune". I did mention a downside target, but I think I'll keep it for my Blog readers, as I don't want to receive any hate mail from Apple employees, or perhaps buy-side analysts.
I went on to discuss my technical reasons for the short recommendation and will display those charts below so you can come to your own conclusions.
AAPL and Apple/Nasdaq ratio chart - Weekly
Apple - AAPL - Daily chart
