Owning AAPL shares these past seven months would have been about as much fun as having your annual cleaning done by Nazi war criminal with a penchant for pain and a disdain for novocaine.
It might seem like it’s been in a free fall, but AAPL’s tumble from 705 has been very aptly guided by a well-defined channel, a few chart patterns and, to some extent, harmonic patterns. The channel that’s been eating away at AAPL is shown below, along with two recent Head & Shoulders Patterns that helped it on its way.
But, it’s the chart patterns and the harmonic patterns that suggest AAPL is due for a substantial bounce. Whether it turns into something more than that will depend on whether it break free of the falling channel from hell.
This is the set of major channels I’ve used for the past several months of charting AAPL. Note that the purple channel broke down a few weeks ago, prompting the latest plunge.
But, AAPL should find support at the .75 line of the white channel around 380-385. This is an equally well-defined channel that dates back 20 years. Because channel placement is as much an art form as science, I like to have confirmation from other sources.
In this case, the harmonic picture is also quite bullish, at least in the short term. There are quite a few potential patterns from which to choose. But, note how the overlapping of several key Fibonacci retracements in the 391-395 range.
This group, seen better in the close-up below, includes the purple .786, the white .618, the yellow .500 and the red .886.
AAPL pushed down through them like they weren’t there yesterday, prompting many to wonder if it was heading much lower. But, the channel lines mentioned above should provide the bounce that will bring them back into focus.
As to the purple channel, it’s done. I’ve added a new, red channel that should take over going forward. If we get the bounce I expect at 380-385, it will have been proven.
Where does AAPL go from here? There’s still the not-so-small matter of the large H&S pattern that completed back in December (in white, above). Recall that it targeted around 305.
If the large white channel shown above should fail, that’s a distinct possibility. The falling white channel from 705 has shown remarkable staying power. And, the next lower gathering of key Fib lines is at 307-317.
But, I suspect the big white channel will provide a significant bounce before any new lows occur. The top of the falling white channel is currently around 435 (though obviously dropping daily), and at 380, AAPL will have nearly met the price target of the latest H&S Pattern to complete.
If the overall market rebounds Friday as I expect, look for AAPL to perk up and participate. A H&S pattern that’s brewing on SPX could easily take prices up to the 430 range.
If the overall market continues past 1597, AAPL could finally break out of its funk and — more importantly — that falling white channel. Another backtest of the broken purple channel at 466ish would be a great initial objective.
I’ve been focusing on the dollar because it’s been an excellent guide to equities’ behavior. There’s been a lot of talk lately about the correlation between the two shifting from highly negative to positive.
The fact is, the dollar didn’t suddenly change it’s stripes. It has simply rallied in anticipation of a market correction that, as yet, hasn’t yet gathered much momentum.
This has happened many times over the years, as the chart below demonstrates. Most of the DX spikes correlate with actual market corrections. The others correlate with expected corrections.
Note the times when DX spiked toward the white channel midlines. The actual SPX plunges with which they match up include 741, 666, 1010, 1074, 1266 and 1343. The other DX peaks match up with the expected SPX corrections listed below:
.618 Fib: the retracement of the crash from 1552 to 768 (2000 – 2002.)
1173: the .786 retracement of the 1576 to 666 crash (2007 – 2009)
1308: the .786 retracement of the 1370 to 1074 correction (May – Oct 2011)
The same could be said the the DX plunges. The 1576 peak from 2007 was a bit of a surprise from a chart pattern and Harmonic standpoint. But, the 184-pt rally from Mar – May 2008 was seen as a top in the works – especially coming near the .618 of the drop from 1576.
The .500 Fib refers to the retracement of the 1576 to 666 plunge – a logical place for a pullback after the 450 points gained in only 8 months.
The .618 Fib refers to the actual retracement of the 1576 to 666 crash. The previous pullback in April came in just a bit shy of the actual Fib level.
1370 was obviously an important high in 2011, as was 1292: the ramp job that derailed the 2011 as 2007 analog. 1474 was the Sep 2012 high. And, the low marked Point C was where the two large Crab Patterns should have caused a reversal at SPX 1553-1555.
So, what about our present position? DX just tagged the smaller channel’s midline, so clearly currency traders have anticipated a correction. Since we haven’t had much of one yet, it’s possible DX could be sending a false signal.
On the other hand, the larger channel midline is only 1.81 away — a mere 2.2% away. And, the rising red channel is guiding us straight towards it. About 2/3 of the daily candles since Mar 12 have crossed over a trend line between the last two important tops: Jun 9, 2010 and Jul 24, 2012.
So, clearly the dollar is having trouble making up its mind whether or not to break out. It bounced off the bottom of the purple channel and the .25 line of the red channel on Tuesday, rallied strongly on Wednesday, and ended the day right on the TL.
Want to know where stocks are going? Watch to see what DX does. It knows…just isn’t saying — yet.
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The dollar backtested an important channel line Tuesday (red, below) and bounced up through an equally important trend line (dashed, yellow). If it holds, equities are in for more downside.
We turned bearish on April 11 [The Big Picture – 11:30 update], shorting at SPX 1597 due to a collision there with two long-term trend lines. Since then, the channel that has guided SPX up from 1343 has been holding on for dear life.
It finally broke down yesterday morning when SPX plunged below 1556.60 on its way to 1543, and we’re waiting to confirm whether or not the initial backtest is complete.
Remember that 1540 is the Apr 5 low and the neckline of the potential H&S Pattern I charted on the 16th. We should get a bounce that retests the broken channel and either keeps going or completes the H&S Pattern, setting up the next leg lower.
CIW: Apr 16
UPDATE: 10:15 AM
We reached 1541.05 — close enough for those interested in playing the bounce. I’ll try a long position here, but revert back with any move through 1540.
More in a few…
UPDATE: 10:30 AM
Getting some air here, helping the H&S case. The left shoulder was way up at 1573, which would be about a 61.8% retracement (1575.84) of the drop from 1597 to 1541. It would also represent a second retest of the 1576 high from 2007.
The more nefarious aspect of a move to 1576 is that it would set up a potential Inverted Head & Shoulder Pattern targeting 1611ish.
Bears aren’t out of the woods yet. As we’ve discussed, at this point the bulls can legitimately argue that the drop to 1541 was a backtest of the broken red 1.618 at 1553.39. Recall, this represents the completion of the Crab Pattern set up by the drop from 1370 to 1074 in 2011.
SPX closed at 1552.01 yesterday — slightly below the 1553.39 line in the sand. So, this would be a slight violation of the rules (so are gifting $85 billion to the banks every month, all the ramp jobs over the past several months, etc; we’ll not quibble over a point or two.)
If SPX can close back above 1553, we’d have two bullish candles in a row and a good shot at tacking on the necessary points. So, we’ll keep this scenario in the back of our minds.
UPDATE: 2:20 PM
There’s the actual 1540 tag we discussed earlier. The previous low was 1539.50, so we’ll see how SPX reacts at that level specifically. I’m ready to cut and run if it pushes lower.
Not saying it will rally from here, but we had a very similar incident back in April 2012. SPX “completed” a right shoulder in a pattern that looked very solid — but had in reality just missed on the right shoulder’s first tag — only a couple of points, not enough for most to notice.
Because the right shoulder wasn’t technically complete, though, it wasn’t really a right shoulder. SPX bounced 58 points and completed a proper RS before finally playing out and touching off a 100-pt decline. So, be careful and watch your stops.
UPDATE: 2:53 PM
SPX just pushed through our stop at 1540, so we’re done with the long position and reverting back to full short.
Just beware that the right armpit is allowed to be lower than the left — since the inception of the pattern is adjustable. That is, the neckline can be sloped downward as long as the two armpits connect and the shoulders are complete.
Not a bad idea to have stops up around 1541 just in case — especially as we move into the final hour of trading.
UPDATE: 3:08 PM
This is what I meant by the last comment up above. No reason the red, dashed line couldn‘t be the neckline. Is it legit? Yes. Is it cricket? Not even close. Do paranoid people ask themselves lots of rhetorical questions? Apparently.
I’m going to add an intra-day long position if we push up through 1540 — just in case. Don’t trust this move one bit…
DX is signaling a rebound with the tag we expected of an important channel line.
While the EURUSD is showing weakness related to rumored downgrades of France and/or Germany.
There is channel support at 1.3087, however, so we’ll see how much momentum the pair can gather.
For SPX, the test will come at 1555.57. We’ll look for a bounce there at the bottom of the rising purple channel and the 1.618 of the 1474 – 1343 plunge last Fall. This Crab Pattern completion produced barely any correction at all back in March — quite a bullish sign.
Was the push beyond 1555 to 1597 merely a throwover that will produce a delayed reaction, or — as bulls are betting — will we successfully backtest it and move higher?
UPDATE: 10:00 AM
As we discussed yesterday, the rather complicated big picture has become fairly simple. SPX has levitated higher since 1343 on Nov 16 within a (now) fairly well-defined channel (below in purple.)
As long as it remains in that channel, the overall trend will remain positive. But, if the channel breaks down, we enter a new phase which will be different from the past five months. Working against higher prices, however, are two important trend lines that stopped SPX’s advances at 1597:
the TL drawn from the two previous 2000 and 2007 highs (red dashed line below)
the TL drawn from the 1994 and 2003 lows (yellow, dashed)
It’s a battle between a rock and a hard place.
We went long at 1345 [Charts I’m Watching: Nov 16] with the expectation of retracing 61.8 — 88.6% (1424 – 1459) of the decline from 1474 before continuing lower.
Then came the fiscal cliff solution over the New Year holiday. The overnight ramp job that followed was a thing of beauty, coming as it did while no one was looking — or was too hung over to care. That was the first of many overnight ramp jobs in the futures market that have propelled this market higher.
UPDATE: 10:22 AM
SPX just reached our 1555.57 target and is almost to the 1553.39 Fib (the 1.618 of the 1370-1074 crash in 2011.) I’m going to switch sides here at 1555 and go long, with stops at 1552ish.
UPDATE: 10:43 AM
Just got stopped out on our long position. So, it’s back to the short side. Tight stops are advised, however, as Monday’s “tag” of the .786 was a near miss (1552.58 vs 1551.88), whereas this plunge actually reached it.
We’re set to get a nice bounce here at the bottom of the purple channel — as revised in last night’s last post.
Based on where the futures are pointing, I’m not sure whether it will have legs or not. But, I’m inclined to play along on the upside, but with relatively tight stops in case it peters out.
The EURUSD has rebounded nicely as we anticipated, but has reached a point of resistance at the midline of the rising channel at a price level that’s proven difficult to exceed since early March.
The daily chart shows a bounce off the bottom of the purple channel as expected, but plenty of overhead resistance in the 1.33-1.34 range if it’s able to break through 1.316 or so. The .618 is up at 1.3341.
The dollar continues to tread water. I’ve drawn a tentative new wider channel that might represent the expected range now that the rising white channel is officially kaput.
Remember, this decline is a backtest of the broken red .25 channel line. If the decline continues on track, we could reach that channel line (at about the .red .382) in very short order. It’s currently at about 81.74.
But, there’s no reason DX must retrace all the way to that line. It has already back tested the purple .618 — a reasonable pullback after the Bat Pattern that completed at our 83.616 target back on Apr 4.
The daily RSI, in fact, shows strong support from the bottom of the rising purple channel and the .25 of the rising white channel.
The yellow midline on the RSI chart represents that dashed white channel midline cutting across the middle of the price chart above. A thrust up through it should accompany the next big equities dump. And, to my eyes, that’s the next major move.
Though SPX is safely back in the purple channel, it can’t go on forever — right? Even if our most bullish scenario plays out, there would need to be pauses of more consequence than the past two sessions.
In that pullback, SPX reached the .786 of the 1539 – 1597 rally between Apr 5-11 (1552.36 vs 1551.88.) The bullish case will consider that reversal as the full extent of the pause — a proper corrective wave that reversed at the bottom of a very well-defined channel dating back 5 months and 230 points.
If so, SPX should head up and push through the trend line extending from the 2000 and 2007 tops — currently around 1593.50 — on the way to its 1823 target.
The bearish case suggests we slap a Point B on that reversal and call it a Butterfly Pattern that targets 1523 or 1503.
Gold continued to melt down today, shedding another $126 and continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.
Gold had a nice bounce from 1539 to 1590 after reaching the bottom of the channel and the horizontal support of several prior bounces on Apr 4. In a dramatic demonstration of what can happen when channel support is lost, it has since shed almost $270/oz.
The red channel below represents my best shot at the new operative channel. It supports the idea of a bounce at the Jan 2011 low of 1309 — 3rd on our list of potential bounce spots during today’s onslaught.
The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above. If those levels should fail to hold, the next major support levels are 1309 and 1155.
We got good bounces earlier today at the first two: the Fib retracements at 1359 and 1379 But, along came the CME with announcements of increased margins and that was the end of that.
Please note, I am not a gold bug. I don’t advocate the purchase of gold. I shy away from most assets that increase exponentially in price — especially those backed with the kind of religious fervor as is gold.
The time may come when inflation is taking hold and it makes sense to switch everything you own into the metal… but, we’re not there yet. It’s a crowded trade, and IMO, today’s price action underscores the risk.
So, the following is offered in the same spirit as my picks for NCAA champion, Best Picture, and Westminster Best in Show (the affenpinscher, really!?)
There’s another channel (below, in purple) that kinda sorta supports the first, but shows the potential downside in the event that 1300 can’t handle the pressure.
It’s speculative, for sure. But, I like the fact that it crosses the white .618 at a key point in time, so I’ll leave it up for now.What’s interesting to me is the Fibonacci Fans that can be drawn on this chart. The ones from 681 low (yellow) have done a pretty decent job of guiding the bounces on the way down.
And, the ones from the 1923 high (red) have done well at halting several attempts at a breakout.
I could almost believe we’ve seen the worst of the drop, but I wonder about this potential channel…
…and, the daily RSI — which suggests at least a little more potential downside any way you slice it. The bottom of the purple and red channels probably correlates to 1309, while the bottom of the gray channel represents something much more ominous.
So, where do we go from here?
I believe we’ll get a nice bounce here to backtest of one of the broken channel lines — say the white midline around 1410 or even the 1450 level. But, it probably wouldn’t happen anytime soon. After that, the downside risk is to 1155 or so.
Of course, if the FBI were to announce irrefutable proof that the North Koreans were behind the Boston bombing, or the Iranians launched a Rahd SAM at an F/A-18, or [insert your favorite catastrophe here], it’s a whole new ball game.
The big story this morning is the meltdown taking place in the commodities complex. Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.
Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces. In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.
The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.
If those levels should fail to hold, the next major support levels are 1309 and 1155.
We’ll discuss oil and other commodities later, but first let’s catch up with equities. Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs. As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.
The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.
This morning, we came very close — reaching 1576.87 so far.
I’ll take a long position here at 1576 just to see where it takes us. Tight stops (1573ish) are in order, as the next support is down between 1553-1561.
We discussed last week about core versus interim positions. I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case. A plunge below 1553 does very serious damage.
So, I’m comfortable in closing out my short position from 1597. That doesn’t mean I believe the market will go up from here. The jury is out. But, by placing tight stops below my long position, I can manage the risk of being wrong.
SPX doesn’t have to reverse strongly for a hold here to be effective. The bottom of the big purple channel (from 1343) isn’t far below at 1564. But, it’s rising quickly. It’ll be up to1576 by Apr 22. So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.
UPDATE: 11:40 AM
Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359. It should reverse here. But, again, a failure to hold could easily send prices down to 1309.
It’s interesting to see what the US dollar has done during this sell-off. Instead of reflecting a risk-off posture and rallying strongly, it has continued to drift mostly sideways to lower.
UPDATE: 11:55 AM
SPX just broke down through 1576, so I’ll play along on the downside here with an objective of 1564 — the bottom of the purple channel. But, a push down to 1561.60 — the .618 of the 1539-1597 rally — looks very doable given the current downside momentum.
UPDATE: 1:10 PM
SPX just hit our 1564 objective. I’ll take profits here and try a long position, but I think there’s at least a 50:50 shot at a (probably) intra-day push lower to 1559-1561. I’ll leave stops pretty tight here and be happy to go along if it plays out that way.
The view from 30,000 feet coming up…
UPDATE: 2:03 PM
Just got stopped out at 1564, so it’s back to the short side. Lots of near-term targets, starting with 1561.60, coming up in a few…
Retail sales dropped 0.4% versus last month’s +1.0% (revised down from 1.0%.) In a market where bad economic news provides the Fed cover to extend QE, we have to wonder whether this is “good bad” news or “bad bad” news.
Surprisingly, the “adjusted” data on which most everyone focuses came in worse than the unadjusted data. I guess even the bureaucrats wouldn’t mind letting a little air out of this market.
In an environment of flat to negative real income growth, retail sales obviously can’t continue to grow in real terms unless savings fall. And, that scenario rarely ends well. In a perfect world, falling retail sales would mean sentiment has probably backed off as well. We’ll find out at 9:55am when Michigan data comes out.
SPX shed about 7 points in the opening minutes and bounced at the former neckline (red, dashed) of the IH&S that didn‘t play out on Mar 25.
With all the charting I do, I sometimes stumble across an important old pattern I’d forgotten about. The way this neckline kept popping up in critical situations, I began to suspect it was somehow connected to something more important.
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BTW, consumer sentiment just came in at 72.3 vs last months 78.6 and expectations of 76. This is the lowest since last July, when slower job growth and higher food prices were taking their toll on expectations.
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Getting back to that neckline…
It’s actually part of a channel system we’ve examined from time to time (in red, below.)
Seen here in a little more detail…
So, a drop back through it in a few minutes won’t be a minor event.
UPDATE: 11:00 AM
SPX is continuing to sell off nicely. I’ve added the channels corresponding to the neckline (in red, below) back into to our charts. It makes things a little busier, but I have a feeling we’ll be seeing more of this system.
I remain short from 1597 [yesterday’s 11:30 update.] As usual, we’ll take a shot at divining where this correction might take us.
The technical elephant in the room is the previous 1576.09 high — now just 5 points below. I wouldn’t be at all surprised if the market closed right there — forcing the decision as to whether or not to hold short into the weekend.
Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.
This is the exact same situation SPX faced in October 2007 when it exceeded the previous all-time high by 23 points (versus yesterday’s 21 point beat of the 2007 high.)
Of course, it had already had the good sense to back off the first time it approached the Mar 24, 2000 1552.87 high. But, when it finally pushed through, it spent a total of 7 sessions above 1552.87, closing above it only 5 times before reversing for a 170 point decline over the next 7 weeks.
Are we in for the same kind of shellacking this go ’round? Before reading any further, I strongly suggest you gather some important supplies: a comfortable chair, a cold beverage of your choice, and a liberal amount of pixie dust.
We closed our longs (from 1539) yesterday, but are still a few points south of the market’s upside potential. While yesterday’s 1589.07 might end up being the top, I rather suspect we’ll move just a little higher.
Recall that we anticipated being in this situation a week ago [Charts I’m Watching: Apr 4 – 1:20 update.]
I strongly suspect that any move that’s much higher than 1576 will terminate at the purple midline… On April 11, the midline of the purple channel intersects with the TL connecting the 2000 and 2007 highs (red circle below.) Also on Apr 11, the .25 line of the same channel crosses 1576 (yellow circle.) So, take your pick.
So, we can’t very well ignore it now that we’re here, can we?
I’ll take a shot at a long position this morning — with tight stops of course. The bottom of the smallest purple channel (from 1539.50) is currently around 1582 and rising about 2.10 per hour.
The dollar reached the next lower line on the falling red channel and will likely backtest the broken white channel as seen on the 60-min chart below.
But, take a look at a daily chart, and it’s obvious that the push lower would be relegated to tail status and the channel would remain unbroken if DX climbs back to 82.515 or so. Not a terribly difficult feat if equities top out this morning…
UPDATE: 10:15 AM
Just tagged the midline of the purple channel that’s guided SPX since 1343 on November 16. I never dreamed when we went long that morning [CIW: Nov 16 – 10:05 update] that we’d tack on nearly 250 points in the next five months.
SPX also reached the IH&S target (1591.66) from the small pattern completed on Tuesday. It wasn’t a very well-formed pattern, but here we are.
We’ve discussed it many times in many contexts, but completing a tag on even a 13-year old channel top doesn’t guarantee a bear market. But, the odds of at least a correction are pretty good.
If anyone’s wondering about the dashed yellow line that intersects with our smallest channel around 1597.68, it’s the TL shown on the first chart up above. It connects the 1994 low and the 2002-2003 lows. If we exceed the TL connecting the 2000 and 2007 tops, this is also a great target.
UPDATE: 11:30 AM
SPX just topped 1597, which is good enough for me. I’m switching sides here and opening a short position. Stops around 1605 should work.
My only hesitation is that we’re sooo close to 1600. Do we leave a milestone like that for another day or go ahead and add it to the QE trophy case. Hmmm…
If 1600 is in the cards, expect a bounce at the red TL (1593.25) which bulls will, quite legitimately, interpret as a backtest of an important broken TL of resistance. BTW, a bounce there would also be a backtest of the large purple channel midline.
If we fall back through both, however, this excursion to 1597 will appear as a shooting star at the top of a nice little Crab Pattern (the 1.618 extension of the drop from 1573 to 1539.)
Next key level below the red TL is the bottom of the little purple channel from 1539 — currently around 1589. And, of course, the 2007 1576.09 high is awaiting its own backtest.
UPDATE: 1:40 PM
SPX has retraced .886 of its drop from this morning’s 1597.35 high. If it’s going to try for 1600, now’s the time. For the bears, a drop through the channel bottom at 1589.40 would really help get the downside going.
UPDATE: 2:15 PM
Got the reversal almost to the penny at the .886 retracement, completing a nifty little Bat Pattern. The bottom of the small channel is coming up at about 1590.
Since we’re dropped back through the red TL and the purple channel midline, the next backtest will be from below.
I’ll update our forecast if/when SPX drops through the channel bottom.
UPDATE: 3:25 PM
Such a simple thing: breaking through a channel bottom. SPX doesn’t even have to chase it. The channel is rising up to meet the index. But, no breakdown yet. Instead, two well-engineered bounces that came at just the right time and place to prevent more serious damage to the bullish case.
And, now we’re entering into the last-minute ramp zone — the last 30 minutes of the session where markets are only allowed to go up. Good thing it’s an efficient market, randomly walking down a present-value path to future cash flows and not some trillion-dollar casino manipulated by rich and powerful interests with unlimited funding. That would suck, right?
If the little H&S is permitted to complete, it targets all the way down to 1585 — the neckline of the last H&S that completed but didn’t pay off thanks to a ramp job in the futures overnight.
The way this market has been going, it’ll close at the neckline — forcing us to choose whether or not to play ramp job roulette with an overnight position.
Just in case there was anyone left out there who still believed the game wasn’t rigged, the FOMC comes along and confirms that certain people are more eligible than others to receive potentially market-shaking information in advance.
Not to worry, though, as it was only politicians, their staffers, the lobbyists, their organizations and employers, relatives, friends, neighbors, household staff, the folks at the next table over at Minibar, the valet parking guys…
In any case, the minutes confirm what we could have surmised based on the governors many speeches, CNBC appearances, etc. There is dissension in the ranks about tapering or ending QE, but it’s still a minority. They’re still worried about unemployment, etc. etc. Nothing new here.
A few moments ago, a Fed spokesman opined that they weren’t aware of anyone on the early distribution list having traded on the information. Riiiiight…..
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In the biggest development of the last 24 hours, the channel the US dollar’s been in since Jan 11 officially broke down. Recall that DX completed a Bat Pattern on Apr 4, signalling a reversal that is playing out nicely.
This gave SPX the go-ahead to make a new all-time high, which it did this morning — finally exceeding the Oct 2011 1576.09 high.
We remain long from 1539.86 [CIW: Apr 5, 9:33 update] and are now looking ahead to several potential turning points — the first of which are coming up between 1579-1583.
The most significant appears to be 1582.95 — a Butterfly Pattern 1.272 extension of the drop from 1573.66 to 1539.50 last week. It happens to intersect this morning with the former H&S neckline (red, dashed) and a TL connecting the 1994 low with the scheduled May 2011 high of 1381.50 (yellow, dashed.)
UPDATE: 10:15 AM
Just tagged the low end of our target range — the 1.618 extension of the 1563-1538 drop at 1579.10 (in purple, below.) This also represents a tag of the white channel that’s guided the swings of the past 3 weeks.
We could get a pause here, as SPX has broken out of its ridiculously steep red channel. Traders might wish to take a crack at what could be a pullback to 1573 (channel midline) or 1570 (channel bottom.)
But, the interim goal remains 1582.95. Of course, the question then becomes “now what?”
A quick check of the daily RSI shows that the game could be over at any point now. This marks the 5th distinct point of divergence and a tag of the yellow channel top and white midline.
The yellow channel is the same slope as the falling channel from 1474 to 1343 last Fall and the falling channel from 1422 to 1266 in the Spring. Can it put an end to this rally?
Apparently jumped the gun a little yesterday by getting out at the .618. The last 5 minutes saw prices ramp up through our entry point and our 1562.50 stop, but the basic thesis is still intact. We should see a small reversal either here or around 1570.
I went long last Friday at 1539.86 [CIW: Apr 5 9:33] after riding a short position down from 1573, but got cold feet at holding a long position into the close — especially after bagging a 20-pt gain.
The market has gapped open more often than not over the past few weeks — typically on a change of direction. This time I outsmarted myself and left several profits on the table.
I’ll play along on the long side and look for a loss of momentum at the .786 (1566.35) or the .886 (1569.77.)
UPDATE: 9:35 AM
Just reached the .786 of 1566.35. Will revert to full short here with stops at 1570ish.
UPDATE: 11:35 AM
We got a nice sell-off from the .786 retracement (1566.51) but have yet to flesh out the rising channel I’ve charted. Since it features such a steep slope, the bottom is rising rapidly — now up to 1560 or so.
The 6-pt drop to 1561.38 might suffice for a right shoulder on the IH&S Pattern, but it’s rather skimpy compared to the 12-pt left shoulder. And, it’s not even one Fib level lower than the .786 turning point.
A more balanced right shoulder would take SPX down to 1555 or so. That would mean a broadening of the channel, of course. But, that’s to be expected with such a steep, narrow channel.
Keep an eye on the previous high. A break of 1566.51 means this isn’t the right shoulder at all; it opens up the .886 at 1569.77. But, a reversal shy of there (and especially 1566) means we’re more likely to tag 1560 or even 1555 before moving higher.
More later.
UPDATE: 12:30 PM
There’s the breakout, settling the question of whether we’re getting a deeper pullback or not. Switching sides here for the run up to 1570ish.
Owning AAPL shares these past seven months would have been about as much fun as having your annual cleaning done by Nazi war criminal with a penchant for pain and a disdain for novocaine.
But, it’s the chart patterns and the harmonic patterns that suggest AAPL is due for a substantial bounce. Whether it turns into something more than that will depend on whether it break free of the falling channel from hell.
But, AAPL should find support at the .75 line of the white channel around 380-385. This is an equally well-defined channel that dates back 20 years. Because channel placement is as much an art form as science, I like to have confirmation from other sources.
This group, seen better in the close-up below, includes the purple .786, the white .618, the yellow .500 and the red .886.
AAPL pushed down through them like they weren’t there yesterday, prompting many to wonder if it was heading much lower. But, the channel lines mentioned above should provide the bounce that will bring them back into focus.
As to the purple channel, it’s done. I’ve added a new, red channel that should take over going forward. If we get the bounce I expect at 380-385, it will have been proven.
Where does AAPL go from here? There’s still the not-so-small matter of the large H&S pattern that completed back in December (in white, above). Recall that it targeted around 305.
If the overall market rebounds Friday as I expect, look for AAPL to perk up and participate. A H&S pattern that’s brewing on SPX could easily take prices up to the 430 range.
