Every so often, a stock can get stuck at a key technical level as the bulls and bears jockey for position.  I call these key levels “magnets”.  Apple appears to be caught in the $500 magnet.

Take a look at the trading action in AAPL over the past 10 days:

Every time the stock rallies, the rally fails and the stock pulls back to test the 500 support.  The opposite has held true as well.  Every time the stock has fallen under 500, it turns around and rallies right back over it.

Technically, the magnet continues to hold for a number of possible reasons:

1) Traders have identified this area as support and continue to buy the stock at the 500 level.  As the stock rallies, those same short-term traders scalp out of their longs which doesn’t allow the stock to gain any significant upside momentum.  Eventually the stock just collapses back.

2)  Short-term traders have identified the relevance of the 500 level and continue to short the stock when it pops.  Again the stock cannot gather any upside momentum to break the force of the magnet.

3)  The whipsaw effect.  Traders continue to be whipsawed as they try to play the breakdowns through the 500 level.  As the stock falls through the 500 level, longs leaning on that level bail, and shorts jump in playing the potential breakdown.  The short-term trading herd moves from being long to being short, and the trade becomes crowded on the short side.  The path of least resistance is then higher towards the 500 level, pulling the stock back up.

Regardless of the cause, if a trader can identify these magnet levels early on, there can be some significant opportunity to profit from these “Magnet Trades”, by simply fading the moves away from the level of significance.