The third component of a buy-and-trade strategy incorporates my proprietary analytics, which are based upon nine years of closing prices; the past nine week's, nine months, nine quarters, nine half-years and nine years. The resulting value level is the price at which to buy a stock on weakness and a risky level is the price at which to sell a stock on strength.
Sometimes there's a pivot price in-between, which tends to be a magnet. If a value level or a risky level is violated in its time horizon, it becomes a pivot for the remainder of that time period. These types of pivots have an 85% chance of being tested again during the period.
Here's how to trade the Apple Bungee Jump: The daily chart for Apple shows the 28.2% bungee jump from $705.07 on Sept. 21 to $505.75 on Nov. 16. Of course no one can capture 100% of this move but with a disciplined approach you can capture a portion of this bungee volatility.
The daily chart also shows what technicians call a "death cross" where the 50-day simple moving average, now at $602.31 trends below the 200-day at $601.26. This simply fortifies these averages as resistances, or levels at which to reduce positions on strength.
Note also that at the high on Sept. 21 that the daily momentum (12x3x3 daily slow stochastic) reading was overbought (greater than 80.00), and then at the bungee low on Nov. 16 that this reading was oversold (less than 20.00). Apple began this week overbought as the stock stayed below its 200-day SMA.
My proprietary analytics show a wide gap between this week's value level at $511.22 and this month's risky level at $612.60.
While the odds do not favor either level to be tested during the bungee downs and ups, there is nothing wrong with a strategy of using good until cancelled GTC limit orders to buy weakness to $511.22 and to sell strength to $612.60.
Chart Courtesy of Thomson/Reuters
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.