May 2nd – 2018 Style

While we wait to see if the COMP scenario plays out, we have a new wrinkle to consider. AAPL reported decent enough numbers, but added $100 billion to its already ballooning stock buyback plan. If this sounds familiar, it’s because stock buybacks have become the new go-to method of propping up faltering tech stocks enhancing shareholder value.  FB did the same thing last week [see: More Than One Way to Skin a Cat.]

AAPL rallied sharply in the 5 minutes following the announcement, but interestingly has seen no follow-through since then.Meanwhile, COMP’s SMA200 has risen 4 points since yesterday.

I’ve always had a warm spot in my heart for May 2.  The first post I ever put up was on May 2, 2011.  It seemed at the time, based on Fibonacci retracements and a rising wedge, that SPX was near a top.

As it turned out, May 2 was the top.  To add to the fun, an analog soon appeared which pinpointed, to the day and the dollar, an impending 22% swoon.  It was a great shorting opportunity (which I and many readers were able to capitalize on.)

It’s hard to overstate the differences between 2011 and 2018.  Back then, QE was driving stocks higher.  A pause in the Fed’s purchases, coupled with the rating agencies being willing to tell the truth about America’s finances, was enough to allow the analog to play out.

Today, in the throws of “quantitative tightening,” markets have come to rely on the ease with which algorithmic trading can move prices.  We see it nearly every day.  And, it’s only in the past few months that the algos have failed to maintain the daily drip of higher prices.  The question is “why?”

If the bulls get their way, COMP will tag its SMA200 and we’ll be off to the races again.  If investors focus on the receding central bank punch bowl, stagnating economy, rising inflation and interest rates, and the gimmickry which has propped up so many stocks, then we have at least another 3-4% to go, and potentially as much as 20% to real support at 2138.

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