Though it is getting a little monotonous, I’ll never get tired of saying that we’re about to tag our next downside target.
The past two weeks of downside have been a great recruiting tool for chart patterns and this website in particular.
A note to prospective members…we’re currently offering auto-renew monthly subscriptions at half-off the first month. To sign up, CLICK HERE.
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The markets weren’t exactly reassured by Powell’s testimony yesterday. Bottom line, no one in their right mind buys the idea that we can have such strong GDP and wage growth but still need such accommodative policy. IMO, Powell was curt and sometimes downright evasive, which didn’t help matters.
Stocks plunged to our initial downside target, closing well below the SMA10 (a rarity, lately) with additional downside potential this morning.
AAPL tested its channel top and retreated. As we discussed yesterday, this failure to break out has weighed on the overall market.
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Two weeks ago, after Boeing’s second 737 Max 8 crashed, I suggested the most obvious outcome from a charting standpoint [see: One Step Forward, Two Steps Back.]
Obviously, BA is reacting to the second crash of its key 737 Max 8. But, its chart already argued for a downturn before the latest tragedy.
First order of business will be to close the gap at 369ish. If it can’t hold at 369, look for it to test the SMA200, the .618, or potentially the .786 Fib well ahead of schedule.
BA closed the gap that morning, then worked very hard to bounce. Unfortunately, despite the company’s best efforts (and, no doubt a few billion in buybacks) the stock has had a hard time staying airborne.
From a charting standpoint, there just wasn’t much support at the original bounce point. As we forecast, the 200-day moving average and potentially the .618 Fib at would likely need to come into the picture. That’s why the stock has spent over two weeks in limbo.
And, that’s why someone dumped a bunch of shares at 4:30 yesterday — 30 minutes after the market had closed for the day. It took all of two minutes for the stock to drop from 370 to 359, and four minutes for it to recover. No fuss, no muss.
The plunge won’t show up on the daily chart…
…but, it’s on the hourly chart and — the company hopes — in the memory banks of those who are betting that the company needs more than a software update to restore public trust in its products.
Meanwhile, ES’s small white channel broke down overnight. All targets remain in force, with this morning’s EIA inventory report likely playing a pivotal role in next steps for the overall market.
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While January’s retail sales saw a modest rebound (+0.2% MoM), December’s were revised downward from -1.2% to -1.6%.
Futures bumped slightly higher, presumably because a slowing economy protects the market from Fed tightening. In reality, it was driven by continuing VIX algo-signalling.
With key DJIA component Boeing off sharply in the pre-market, today could be a tumultuous day.
Obviously, BA is reacting to the second crash of its key 737 Max 8. But, its chart already argued for a downturn before the latest tragedy.
First order of business will be to close the gap at 369ish. If it can’t hold at 369, look for it to test the SMA200, the .618, or potentially the .786 Fib well ahead of schedule.
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Yesterday’s setup for the e-minis looked pretty straightforward: a drop through the 200-day moving average and backtest of the 2.24 Fibonacci extension at 2729. Futures had already dropped through the 200-DMA and were heading south when the dismal retail sales data dropped.
I hedged my bet, redrawing our daily downside target to include the 10-DMA — just a few points below the Fib extension.
Fifteen minutes into the session, as ES reached 2730.25, the headlines started dribbling in. Fed Governor Lael Brainard publicly commented that QT should end this year, ahead of schedule. Larry Kudlow commented that there was a glitch in the retail sales data. Mnuchin felt all warm and fuzzy about the trade talks.
Faster than you could say “Plunge Protection Team” ES reversed course and SPX closed the day with a gain. But, the move didn’t feel finished. As I wrote at the end of the day:
ES looks likely to test its SMA200 all over again. But, will it make it on down to the 2.24? Its SMA10 will probably be up to 2728 by tomorrow morning, adding additional support.
I guess the market fairies were listening, because that’s exactly what happened overnight. ES dipped to 2729 right as the SMA10 was arriving on the scene, then spurted 27 points higher — breaking out of the falling white channel in the process.
The algos are in full support mode at present, though a few charts suggest a pop and drop is in the cards if VIX doesn’t pull off a game changing plunge.
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With the overconfident bulls emboldened by the 200-day moving average looming just above, the bears have run a trick play and have the goal line in sight.
To be sure, there are half a dozen defenders in between here and a score – starting with 380-lb All-Pro VIX. Its 200-DMA at 16.54 is now resistance, and it has a reputation for cheap shots.
Thanks to exhaustive scouting, though, our yield curve model suggests there’s a weakness in the defense that offers bears a clear path to the end zone — if they don’t fumble the ball.
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Nothing much has changed since yesterday. SPX bounced around in our target zone, coming within a few points of its SMA200 as VIX went nowhere.
The one notable exception was AAPL, which after tagging our downside target on Jan 3 $from last November [see: AAPL Discovers Gravity] reached our upside target yesterday. 
We originally charted this upside target on Jan 3 [see: Update on AAPL, Jan 3] and the IH&S pattern reinforced it three weeks later. Had AAPL not reversed, the additional downside potential was substantial.
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Don’t look now, but COMP is approaching our 6760 target. As we discussed on Oct 10 [see: Plan B] COMP faced significant downside if its 200-DMA didn’t hold.
Bottom line, it didn’t. It was off as much as 13.3% last month before beginning a bounce that was destined to fail. Next week, it will get another chance at tagging some meaningful support around 6760-6800 – depending on whether it happens Monday or later in the week.
Members will recall we had two near misses on the 200-DMA in Feb and April, followed by a breakout that defied logic. Now, two months after it broke down through the important moving average, COMP has been laid low.
Can it hold here, or will AAPL’s continuing meltdown drag it even lower?
My 144.48 target for AAPL remains unchanged since Nov 14, the day it broke below its SMA200 [see: When Push Comes to Shove.] Then…
…and, now.
Stay tuned.
A quick update on AAPL, which has reached two of our downside targets today…
As we discussed prior to AAPL’s earnings report [see: All Eyes on AAPL] the stock had a gap to close and 200 DMA to backtest. 
The danger in reaching both targets was that AAPL would have to descend below the triangle top above which it broke out in August [see: Focus on the FAANGs.] But, as we discussed, this wouldn’t necessarily be all that alarming.
A drop to 200 or so wouldn’t do much to dent bulls’ enthusiasm. Even a drop to the SMA200, currently at 192.17, could be passed off as a base-building exercise.
It’s been almost two weeks since AAPL posted earnings, and it just reached its SMA200, (one day after closing the gap) posting a low today of 191.45 — an 18% drop from its Oct 3 highs. Needless to say, some bulls are getting nervous.
A quick glance at the weekly chart shows why. If the rising red channel from 2016 doesn’t hold, it’s quite a ways to the first serious support down at the purple channel midline. Maybe it’s time to expand the company’s stock repurchase plan.
Don’t own any AAPL? Wondering why you should care? Drops through AAPL’s 200-DMA have been a trap door to some big swoons for the overall market.
With our yield curve model and oil/gas charts screaming “short!” I’d give better than even odds that AAPL’s channel and the overall market are headed lower. If AAPL closes below its SMA200, I’d say it almost certain.
Stay tuned.
UPDATE: Nov 14, 2018 – 3:45 PM
AAPL closed below its SMA200 and its red channel is failing. As we noted a couple of weeks ago, the nearest significant support is now the .618 Fib at 144.48.
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Futures are back to flat, having bounced a bit on the Iran sanction news as it provided a modest (so far) bounce for oil and gas prices.
The market has a wait and see feel to it this morning, with AAPL breaking down further…
…but, the algos all but ignoring it, focusing instead on dollar strength (TNX is higher again) and oil’s potential recovery. AAPL is now off almost 14% and is nearing our channel target [see: All Eyes on AAPL] with the gap close target of 195.96 and SMA200 target (currently 192.44) looking better all the time.
Members might wish to revisit last week’s post on VIX [see: VIX’s Warning] in which we discussed the bearish implications of the impending 50/200 cross. This morning, it’s alive and well.
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