I created this post for friends holding Apple call options with April strikes. But it’s a useful guide on bottom-fishing Apple.
Throughout the crash, websites have been tantalizing people with the possibility of a v shaped recovery or some sort of huge bounce which will restore value and allow a decent exit.
It isn’t going to happen. At least not for the Aprils. If you’re in April, your best bet is to roll to May or later asap before theta decay erodes any remaining value.
Why?
Apple was just massively oversold. The resulting bounce has brought us up a measly 25 points and upward momentum has stalled. We just broke to the downside of a bear flag. We’re heading back down to re-test the lows.
Now April’s only chance is that this time, Apple makes a higher low, or lower low on lower down momentum that actually holds. Positive divergence has not held throughout the crash.
Until Apple makes a higher high, and a higher low, the downtrend is still intact and we can expect lower prices.
Forget about 550 in the next month or two…there is no evidence for this at all. It’s hopium (possibly designed to get people to renew just one more month).
The only hope is that the Feb max-pain point of 495-500 (http://aaplpain.com/?page_id=8) is going to suck us upwards sometime in the next three weeks. I have only low confidence in this.
Absent that, there is nothing right now that says we should go higher. We’re not oversold on the hourly or daily. There are no expected catalysts until Apple reports earnings in April.
What I’m watching is the weekly.
RSI touched oversold on the 14 and shows divergence on the 7. MFI is oversold. Wait until positive divergence is confirmed and the macd turns up. This should coincide with a 1-2-3 trend change on the daily. Then you’ll know the bottom was in. But I expect this process to take another month or two.
And finally, ask yourself – would you buy the spread you own here at these prices? If not, then sell. Don’t bet on more hopium. Save your ammo and wait until we’re in a confirmed uptrend to buy.
Best to sit and watch Apple right now. There will be better chances to buy in the middle of the year when guidance should be improving.
