Seeking Alpha

Vikram Saxena's  Instablog

Vikram Saxena
Send Message
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.

    Themes: Apple, Equity, Bonds, Outlook Stocks: AAPL, TLT, TBT, SPY, BAC
Back To Vikram Saxena's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments


Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.