Least Resistance- what does this mean
Days like these are most interesting as far as risk management goes. Most of the times stock prices follow a chaotic pattern. Forecasting them is not easy if at all impossible but sometimes subtil changes in the surroundings make things forcastable. This happens when
individual stocks get to be treated almost as an index. For example let´s take a look at Apple for the moment. The last earnings release was beating expectations handily but the stock didn´t move. Why? Well, analysts were a little puzzled over the methods Apple is using for their iphone returns. They account for all revenues and cost right in earnings release for that specific quarter. Beforehand they had to spread it out over a longer period time.
But this is not the reason of our post. What does that mean “Least Resistence”? Well, stock prices can be moved around for a little while but in the end they always go the path of least resistance. This means, they will follow the path of fear or greed.
In this case it is a clear shot. Apple came up with their best earnings release ever and they will reveal a new product, which people most probably will like, given the history of Apple´s products. So for a couple of days the stock price can be held down, but after a while it will follow the rules of greed. There is money to be made with Apple so people will eventually start buying the stock.
So in the end the stock price will start climbing up. Do we have to wait a couple of months before this happens? No, this is a strong company with a strong product pipeline coming up with strong numbers, it will start climbing pretty soon and when it does it will do that in a strong manner.
This means that our risk management is in the history of the company not in the stock price itself. We can allow a wider stop on this one and be more flexible about being stopped out of the trade.
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I agree, Apple is definitely a stock, to keep a close eye on. However, it will be interesting to see what the recently revealed iPad really can do for Apple.
Yes, i agree, but it is not only about the ipad, where do you want to put your money in the market if you only have so many companies really making money? So, a lot of people will put down their money in Apple stock just to have their investment in a “save heaven”.