Vikram Saxena's  Instablog

Vikram Saxena
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Vikram is an electrical engineer by training and has held a variety of roles spanning multiple industries. He started his career in the semiconductor industry in the Silicon Valley, before moving to a proprietary trading desk at a bulge bracket investment bank in New York. Vikram has also... More
My blog:
The Inquisitive Mind
  • An Inside Day: But a Pullback is Imminent 0 comments
    May 5, 2009 10:35 PM | about stocks: AAPL, TLT, TBT, SPY, BAC


    The equity markets had an inside day today. Most indices traded well in the upper end of yesterday’s range. The SPX formed a double bottom at the 897 level and closed strong.

    However as I write this post the S&P futures are down 11 points. It seems this was a result of a news item that Bank of America needs $34B in new capital based on the stress test results. Though BAC has declined to comment, I expect a distribution day tomorrow with traders now having ample reason to take profits.

    In today’s post I will analyze two charts, one for Apple and for the 30 year treasury (NYSEARCA:TLT).

    Apple: Forming a Megaphone Top

    Apple’s stock has been on a tear since the rally began and closed higher today. However today it formed an interesting pattern called the Broadening Top or a Megaphone Pattern. This is a pattern which marks a reversal at the top of a long bullish run. If the weakness in the equity market continues into tomorrow’s session, I expect the breakdown to occur tomorrow to complete the pattern.


    I commented on twitter as this pattern developed throughout the day. I noticed it forming during the afternoon and the pattern continued to follow a text-book pattern till the close of the day. Based on the pattern, Apple should first reach a downside target of around 131.20, and then assuming the lower trend line breaks, go down to touch 130, or even lower to 129.60 (from a pure pattern perspective).

    You can follow my twitter updates on my blog also.

    Long Bond (30 year): Poised to Break Downtrend

    As I have posted I have a long position in the TLT which I have kept during the sell-off; I had hedged a portion with TBT calls which I no longer hold.


    As the chart shows for ZB, the 30year bond futures show, the price has formed some sort of a bottom and is poised to break back up. As I write this article the futures are trading at 122’265, above the resistance line in the chart. I expect the long bond to retrace at least to the 123’065 level (23.6% retracement) or even to the 38.2% level (124’055) before this up move is done. If the BAC story is true risk appetite is going to wane a bit, and yields should pull back. This is likely to be good for the green-shoots to continue growing.

    My Portfolio

    I have built a short position in Apple today via outright equity shorts and puts. I expect to book profits on any weakness tomorrow. I will also start scaling out of my TLT positions if this surge in bonds continues. I did scale out my IYR puts today and will continue to do so on any further weakness. I am hoping that we pull back to the 875 level on the S&P, test it. A test of that level will reassure a lot of bulls and also weaken the bearish sentiment.

    Stocks: AAPL, TLT, TBT, SPY, BAC
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