As describedin our article on speed resistance lines (SRL) dated September 22, 2011 (found here), Netflix (NFLX) fell below our projecteddownside target of $99.58. Although we thought that the stock would be worthconsidering below such a level, we had to concede that, “...the difficulty may be that thesentiment that pushed the stock price to $298.73 would likely be just theopposite to push the price down.” Assuming the purchase of thestock at $99.58, an investor would have gained 21.10% based on the currentprice of $120.59.
Naturally, wewondered what Edson Gould’s speed resistance lines would say about AppleComputer (AAPL). The very first thing that we look for, to determine speedresistance 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 onGould’s work, Apple (AAPL) has a conservative downside target of $230.09 and theextreme downside target is $151.89. Whenwe ran the same calculations on Netflix (NFLX) in September 2011, we made aseemingly innocuous error. We overlookedthe fact that NFLX had a lower support line (red line) at the price level of $85. In this case, we have denoted AAPL’s supportline (also in red line), at $117.05, as a potential downside target for thestock.
As the priceof Apple increases, so too does the SRL lines based on the work ofEdson Gould. The rampant enthusiasm for AAPLsuggests that the stock isn’t likely to decline to the indicated levels anytime soon. However, when and if you seeAAPL start to make a swan dive, the levels indicated are reasonable downside targets.
