The analysis in this article runs from the day of Apple’s 2-for-1 split, which was on February 28, 2005, until May 5, 2006. On the morning of the split, its opening price was $44.68. 300 days later, its closing price was $71.89. Lately, its price has been relatively flat -- advancing just 43¢ in the past 50 days. On the other hand, during the same 50 days, its trading volume has surged by 33 percent.

Before we begin, take a look at the chart. Apple’s price appears to be very sensitive on days of excessive volume. And, after a long run to the upside, it fell sharply with 33 negative days in its correction of 50 days. But, by using the “FIB RET” indicator in eSignal, we were able to accurately forecast its recovery.

Fast Facts (Apple Computer -- 300 Trading Days):
Price Range: $86.40 - $33.11

Average Daily Trading Volume:
300 days                                  =  26.62 million shares
previous 50 days                       =  35.38 million shares

Average Intraday Volatility (Highest – Lowest Daily Price):
The average percentage fluctuation between these two extreme scores was 3.07 percent. But, during the previous 70 days, the intraday volatility was rapidly spreading -- registering a 3.53 percent difference (at $2.40 per day). In comparison, Microsoft’s highest – lowest average daily price difference was 1.39 percent.

Protective Stop Orders:
Because the average difference between the opening – lowest intraday price was 89¢, a protective stop order on a long position appears to be a sensible precaution -- especially because a plunge greater than $2.00 was quite common (occurring in 10 percent of the 300 trading days. But, trading Apple is not that simple because, with its record of volatility, it can easily slice into most protective stop orders, and, after falling sharply, on several occasions, it has made a remarkable comeback.

By subtracting the closing price from its lowest intraday price, we can measure the average recovery at 80¢. Certainly, a turnaround of this magnitude can be difficult to stomach, even for the most seasoned investor.

Six Best / Worst Recovery Days after the Lowest Intraday Price Is $2.00 from Its Opening Price:
30 days after experiencing such a strong downslide, what were the results of the weakest and the strongest six days? The six worst days show little upward movement, staying within 25¢ of their closing price. On the other hand, when evaluating the six best recovery days, we find that the average closing price was a remarkable $2.36 from its lowest trading price of the day.

Winning + Losing Plays (February 28, 2005 – May 5, 2006):
If you read my earlier article posted on the eSignal websites (“Splitting Performance Results into Smaller Segments”), you know how important it is to perform a separate analysis of the two trading sessions. We can attribute Apple’s success to the overnight trading session (OVS). Its $48.70 profit gave the insightful investor a nightly profit of $16.23 per 100 shares.

The RTS fell $21.30 in the 300 days. However, there were ways to soften this blow; by basing your decision on the movement of the OVS, you can improve your results. After a declining OVS, the RTS fell $3.92; conversely, after an advancing OVS, the decline in the RTS was $18.82.

Results of the OVS after a Sharp Loss in the RTS:
After registering a decline of $0.60 in the RTS, Apple’s average recovery was 28¢ ($280.34 for a 1,000-share long position); therefore, individuals were more likely to see this as a buying opportunity. This, to me, is indicative of bullish sentiment; when prices fall sharply during the day, it becomes a profitable buying opportunity for individuals trading at night.

Apple’s fall of $26.88 in 50 days (January 13 – March 28, 2006) can give us some insight into the future. For instance, the discrepancy between the two trading sessions was remarkable, in that there was a profitable ($10.24) OVS, but an unprofitable RTS ($37.12). Despite the strong correction, the temptation to go long after the RTS did not subside. Will this pattern emerge the next time Apple suffers a setback? Who knows for sure, but, if it does resurface, it will make the next correction easier to swallow.

What Insight Can We Gain from This Correction?                      
By showing the after-hours performance of Apple’s 50-day correction, we can assess its price movement from 16:00 to 18:30. At the very beginning of this correction, there were two large red candlesticks. Are they giving us some warning? 

 (Note: The spacing between the candlesticks is the result of trading activity taking place outside the 16 - 18:30 time frame.)

If you are restricting your trading to a few stocks, this one will certainly keep you occupied. It has many attractive ingredients for the day trader to follow. If you begin applying my strategies, do, however, monitor their performance before trading them.

*Reprinted (and modified) with permission from Anthony Trongone, Ph.D., CFP, CTA, Director of Executive MBA Programs in China at Centenary College in Hackettstown, New Jersey