By Thierry Laduguie
Two weeks ago I wrote that Apple was a buy (see article), the stock was trading at 530 at the time. As we can see on the following chart the stock has moved up since I made the call and is now within reach of the 55-day moving average.
I used simple indicators like moving averages, the RSI and the relative strength to time the stock. These are not the only indicators one can use, any momentum indicator will do. The indicators gave a strong signal but more importantly I predicted a stock market rally at the time. If you trade stocks you want to know where the market is headed. Any stock, with or without strong fundamentals, will be dragged down by a market decline. Apple is no exception so when the S&P 500 lost 7% in two weeks, Apple pulled back sharply.
On 18th May I predicted a stock market rally and Apple met my criteria based on the relative strength, the 55-day moving average and the RSI. When a good quality stock is dragged down by the market, it presents investor with a buy. Of course things can change rapidly and today I can’t say with confidence that the stock market rally will continue. Nevertheless, buying at the right time offers some protection.
Had you bought near 530, today with the price at 578 you would have moved your stop loss to the opening level. If the market decline continues at least you would not lose money. That’s the way I do things, timing the entry and protecting the position.
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Thierry Laduguie is technical strategist at e-Yield