As described in our article on speed resistance lines (SRL) dated September 22, 2011 (found here), Netflix (NASDAQ:NFLX) fell below our projected downside target of $99.58. Although we thought that the stock would be worth considering below such a level, we had to concede that, "...the difficulty may be that the sentiment that pushed the stock price to $298.73 would likely be just the opposite to push the price down." Assuming the purchase of the stock at $99.58, an investor would have gained 21.10% based on the current price of $120.59.
Naturally, we wondered what Edson Gould's speed resistance lines would say about Apple Computer (NASDAQ:AAPL). The very first thing that we look for, to determine speed resistance lines, is the most recent peak in the price. Because AAPL is continually making new highs, we only need to use the latest price of $455.68 as our starting point.
Based on Gould's work, Apple (AAPL) has a conservative downside target of $230.09 and the extreme downside target is $151.89. When we ran the same calculations on Netflix (NFLX) in September 2011, we made a seemingly innocuous error. We overlooked the fact that NFLX had a lower support line (red line) at the price level of $85. In this case, we have denoted AAPL's support line (also in red line), at $117.05, as a potential downside target for the stock.
As the price of Apple increases, so too does the SRL lines based on the work of Edson Gould. The rampant enthusiasm for AAPL suggests that the stock isn't likely to decline to the indicated levels any time soon. However, when and if you see AAPL start to make a swan dive, the levels indicated are reasonable downside targets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.