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Technical Tuesday – A Healthy Pullback or Down with the Sickness?

"Looking at my own reflection When suddenly it changes Violently it changes (oh no)" – Disturbed Is the downturn anything to worry about? Markets need corrections.  Every once in a while, even in the greatest rally, some people need to actually take their profits off the table and realize some of those gains.  It's often in the support levels we find during these sell-offs (when a volume of buyers show up), that we are finally able to discover the true price range of a stock.  Apple (AAPL) , for example, has goine from $125 in early June to $150 last week, which is up 20% and, according to our fabulous 5% Rule™,  we expect a pullback of 20% of the run (weak) or 40% of the run (strong) so 5-point retracements to $145 or $140 and that's exactly what we're getting: $150 for AAPL is over $2,500,000,000,000 in market cap.  The 20% run added $500Bn to AAPL's PRICE (not value) and that's more than the TOTAL market cap of all but 12 companies on the planet.  Did AAPL gain a Visa ($528Bn) or a Samsung ($462Bn) last month?  It took those companies decades to climb to that valuation but AAPL can gain or lose it overnight?  No, that's silly – the market is silly – don't take it seriously.  This is a runaway market and not following the normal rules of investing. Which is why we have our hedges ( see last week's portfolio reviews ).  While the market was diving, we checked in on our paired Long and Short-Term Portfolios and found: Well, the STP is sure working: …

"Looking at my own reflection

When suddenly it changes


Violently it changes (oh no)" – Disturbed

Is the downturn anything to worry about?

Markets need corrections.  Every once in a while, even in the greatest rally, some people need to actually take their profits off the table and realize some of those gains.  It's often in the support levels we find during these sell-offs (when a volume of buyers show up), that we are finally able to discover the true price range of a stock.  Apple (AAPL), for example, has goine from $125 in early June to $150 last week, which is up 20% and, according to our fabulous 5% Rule™,  we expect a pullback of 20% of the run (weak) or 40% of the run (strong) so 5-point retracements to $145 or $140 and that's exactly what we're getting:

$150 for AAPL is over $2,500,000,000,000 in market cap.  The 20% run added $500Bn to AAPL's PRICE (not value) and that's more than the TOTAL market cap of all but 12 companies on the planet.  Did AAPL gain a Visa ($528Bn) or a Samsung ($462Bn) last month?  It took those companies decades to climb to that valuation but AAPL can gain or lose it overnight?  No, that's silly – the market is silly – don't take it seriously.  This is a runaway market and not following the normal rules of investing.

Which is why we have our hedges (see last week's portfolio reviews).  While the market was diving, we checked in on our paired Long and Short-Term Portfolios and found:

Well, the STP is sure working:


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