Parabolic Trading Behavior: Some Observations

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Given the action in our good friend AAPL, I thought I would do a little look back at other parabolas and see if there were any similarities that may give us an indication as to when this thing is finished.  I see a couple of things that I think we can take with us.

  • 1.  Volume spikes tend to occur with breakouts and are initiatory in the beginning of these moves, but occur with the tops as the move progresses (but you usually see the volume pick up a little on price resistance breakouts).
  • 2. If any resistance lines are formed they tend to be the best points to take profits.
  • 3. If there is an ascending triangle or rising wedge to form, it tends to happen near the middle of the move.
  • 4. Outside reversal days a.k.a. bearish engulfing patterns, often mark tops with above average, but not necessarily the highest volume.

Lastly, check out the AAPL charts.  I drew one up with parabolic observations and a second one where I actually found a channel which if  you observe others does not negate a parabola being present.  There is absolutely a buying frenzy around Apple right now and I don't think this thing is done.  I also doubt that the rest of the market will seriously correct until Apple finishes its run given its weighting powers.  Certainly, Apple has been trading very steeply, but not necessarily parabolic yet.  I think there is a good possibility we see Apple hit the bottom of its channel sometime soon (perhaps around the noted gaps or channel bottom) and that will be a buying opportunity for the truly brave (or stupid).  I could see this bust out of the upper channel line in the final climax coinciding with headlines like "Apple up $100 in a single day!"  and that will be the top or so close, the risk is astronomical.  Should be fun to watch. 

A few examples that I found had no years on them so I couldn't analyze them a little more closely.  In general, arrows are looking for what price action correlates to the volume spikes.

Metricom parabola - Mar 23, 2012
Leap Wireless parabola - Mar 23, 2012

Qualcom parabola - Mar 23, 2012

SLV parabola - Mar 23, 2012
GLD parabola - Mar 23, 2012

And now for Apple…
AAPL parabola

I think if the gap fills around 570, that may be the ideal place to throw on a very well risk-managed position and see if you can't pull out some profits.  If AAPL can't make it down that far, the channel would be the best entry.
AAPL channel - Mar 23, 2012

Have a good weekend, Slopers!