Here's why I'm short KLAC and AAPL

KLATencor

(KLAC | Quote | Chart | News | PowerRating) recently formed and completed a head and shoulders reversal pattern, dipping briefly under 50. Since then, it has bounced back strong, even making a new 6-month high just over 55. As it pushes forwards, we can't help but see another potential head and shoulders pattern forming.

As illustrated below, KLAC formed and completed one head and shoulders pattern, and is now beginning to form another. Is it time to sell?

First, remember this: Before we can expect KLAC to break down into a new downtrend, we must first see it break the neckline formed in the head and shoulders pattern. As you'll notice, the neckline from the 1st head and shoulders reversal pattern is the same neckline the 2nd head and shoulders pattern forms around. KLAC longs should be safe until that neck line breaks (approx 52.00).

Once this occurs, you can bet KLAC will drop at least $2, testing support at $50 once again. Until the neckline breaks, you should be okay, but once that happens, sell sell sell!

Apple Computer

(AAPL | Quote | Chart | News | PowerRating) has had a heck of a run, but there are signs that it is coming to a close now. AAPL has officially put in a head and shoulders formation, one of the most reliable indicators that a stock's trend is about to reverse. Take a look at the one year chart and you will see what I mean.

With the neckline at around $71 now officially broken, the head and shoulder reversal is complete, and AAPL should be looking at a fairly severe drop from these levels.

Look for opportunities to short sell on a retrace to the neckline around $70-$71/share, especially on low volume. The target on this stock trade should be around $56, with a stop that requires AAPL to breach the $75 level before forcing you out of the trade.

DaytradeTeam traders will look for optimal entry points for swing trades as well as bearish option spreads over the next few days.

Andy Swan created and co-founded DaytradeTeam five years ago on a principle of empowering individual stock and options traders with the techniques and analysis methods typically reserved for elite professionals. His expertise in technical analysis and commitment to educating members earned DaytradeTeam a top-ranking among advisory services for several years.