Laura Banks
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Laura Banks in Markets and everything in & between!,

Apple's ‘sell the news trade’ was preempted

It's been a month now since the last chorus of crash calls made the roundssimultaneously to a short-term retrace in the markets. As Charles Dow would have called it, though — just noise. Now, one hundred points higher and with 2000 being the focal point of late, the market's unsustainable angle of ascent has transpired without anything more than a couple of faint signals that it would even attempt to retrace. Wednesday, it finally gave off a signal and for reasons you wouldn't expect — the Apple “sell the news” trade was preempted. Holders were forced to sell early, creating volume off the top and two-bar reversals elsewhere.

The unexpected signal from market leader Apple AAPL, -0.83% was swift and without mercy. As you know, the Apple trade has been the bread and butter of the technology advance for the past few months — ever since it turned to embrace Carl Ichan's financial-engineering schemes.

With the big news event in Cupertino less than a week away, and with nearly every money manager playing the same game of "ride it higher into the event, then sell the news," Samsung upstaged the boys from California with it's own event. They rolled out a 3-D add-on called "Gear," which is a device that turns tablets into virtual-reality 3-D screens. With Apple upstaged, the easy trade turned into a fast escape as fund managers and institutions sold in haste, shaving more than a month’s gains off the stock in just a few hours.

Given Apple's enormous weighting, it quickly took a gap-up opening for all the indexes and turned them into a short-term graveyard for early buyers. It wasn't the percentage loss that was important, since that was miniscule in the larger scheme of things. What was important was that it left a two-bar reversal again with the index just as extended as it was the last time it occurred.

Now, at least there is near-term support on the S&P 500. If you glance over at the poster child for this advance, the Nasdaq Composite, support is a good 14% lower, as seen here.

No matter if you are a trader or an investor, you should always have some feel for what you percentage-loss risk level is. The easiest way to tell that in a bullish stock or an index is to look at where demand should show up if price should turn. In the case of these most extended indexes, anchored support zones are a long way away, as you see.

Now, of course, this is but a blip on the weekly chart at this juncture, and when compared to the gallop higher, who cares is probably what you are muttering right about now. Well, yes, I understand that thought process, but all retraces start with small changes in the dynamics that have been driving the market higher, and without a doubt, Apple (weekly chart) has played a huge part in that push, and as you can see, anchored support for it is a very long way away as well on the longer-term time frame.

Given the reversal signals, as a trader it finally presents a little two-sided action to come. As an investor, though, you should probably should just ignore the noise as Dow would have done.