As we have discussed time and time again throughout past issues of our Daily Smart Report, when support is broken it often turns into a resistance level. The same is true when resistance is broken, it then becomes support. The trade we have on watch today should illustrate this point perfectly.
Apple (AAPL) has been working overtime on taking the market lower since collapsing after notching nearly $200 a couple months back. Fast forward to now and AAPL is looking at numbers in the 170s and could be headed lower with a break of a key support level at around 172.
As you can see on the chart, this level has acted as support in the past couple weeks several times. However, after being broken, we now look at this level as becoming a resistance level, which will most likely act as a deterrent from the price going much higher.
As we have seen in some of our past trade ideas, most notably, our trade breakdown on UPS, we may see price push back up to this level as a retest to go higher only to reject and take another spill lower. The highest probability trade from our standpoint would be to wait for this retest of 172 if we get a bounce to look for entering our puts position.
But, one could see what has been happening most of last week and the bleed over of those falling stock prices into this week as a sign that the market doesn’t have much bounce left in its step here. If continued weakness is the case, then AAPL may not retest this level at all.
For those who are looking to postion themselves in puts early, you can take a much smaller position size if you think there will be weakness, which will leave you room to add to your full position size when and if this retest happens. This will ensure you don’t miss the move, however, you must know your level where the trade becomes invalid.
Be sure to keep this trade on your watchlist should the market decide to spill over more as there seems to be a clear character change taking place.
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