Wednesday, September 28, 2011

Another Reason to Remain Bearish On Stocks

Click on Chart to Enlarge

See the notes on the chart for further detail. Basically AAPL has been able to buck the trend to some extent and push to new all time highs this month. However, this comes in the context of a rising wedge or ending diagonal chart pattern. An ending diagonal lead to about the most vertical/explosive reversal of any chart pattern. Prices will retraced the entire diagonal often in a quarter to a third of the time it took to form or even less.

So given that AAPL pierced the upper diagonal line and reversed down with a gap and is below the prior peak from July, this has everything in place for a major top for AAPL. The weekly RSI and the daily MACD have beautiful bearish divergence. The daily MACD made a bearish cross sell signal today. If the lower diagonal trend line out below.

Earnings is next month, my guess is we will see a major downer this time. Some Jan 2012 puts would be appropriate here. Also, shorting ASAP with a stop above the all time high for short sales. The initial covering point would be $300 based on the chart pattern.

Also, distribution days are still running basically 2 to 1 to accumulation days over the last several months. So one could choose to ignore this and say "well it still broke out to new highs after last time you said that. It just shows AAPL is invincible." Or you could realize that this means, for a fact, that a tremendous amount of selling has occurred over the last 9 months while prices have remained generally higher. Big holders have been exiting this for the last 9 months. If you hold it, what is your exit plan?

BIDU and CMG are two more high fliers that look to be at critical points with likely downside ahead. So if the leaders are set to move down 25% or more in the coming months I have to think the market will come under severe pressure as well.

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