AAPL Update 1-14-13

AAPL gapped down over 3% this morning, made a new low for its decline since Sept and looks to have broken out of the descending triangle pattern noted in the last post.

The daily MACD has bullish divegence, so this is possibly a terminal type move if we see a quick upside reversal, but until that is proven, I believe the higher odds is that this is a breakout of the descending triangle which will likely push AAPL down to $430 or lower over the next few weeks.

AAPL Descending Triangle

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AAPL looks to be forming a descending triangle which projects a move down to $425 if completed.

The daily chart of AAPL above shows a horizontal support line at roughly $500 where 3 recent swing lows occurred on the price chart.  The lower swing highs over the last few months create a descending triangle formation on the chart.  A close below the lower boundary would trigger the pattern and project a move to about $425 based on textbook projections of the widest leg of the base of the triangle projected down from the breakout point.

Also of note is a large unfilled gap up from earnings in Jan 2012.  The descending triangle projection ends near that gap up, so that area seems to be a likely next target for AAPL if it breaks to lower boundary of the triangle.

Click on Chart to Enlarge

Continue monitoring the Nasdaq for a head and shoulders top formation.  The look and volume pattern is roughly correct at this point.  It would take a close below the neckline (the upsloping line drawn on the chart) to trigger the pattern.  The minimum price projection would put the price back near the Oct-Nov 2011 lows if completed.

It will be interesting to note large trader response to last Wednesday's price jump when this weekend's CoT report comes out.  As of last week's report, the "smart money" is at a record net SHORT position on the Russell 2000 contract, and the major index combination still showed smart money heavily net short near multi year extremes.

The smart money has tried to compress the market between the Sept high and the Nov low.  A break of either price level is likely to lead to a continuation move in the same direction.  If prices on the Dow and S&P 500 move above the Sept high, then it could lead to a rather extended period of short covering by the smart money.  Such occurrences tend to lead to low volatility price advances for several weeks.

Stock Market Update - Exhaustion or Breakout?

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In the last update I had suggested that it was probable to see another push to new rally highs before an ideal topping pattern would complete for a possible extensive move down in stocks.

Obviously we have seen a move to new highs, but in dramatic fashion in conjunction with associated "news" from the fiscal cliff situation.

That move down into that recent swing low has been completely retraced in less time than the decline took to form keeping the price logic objectively up.  So the question is whether this recent pop higher is an exhaustion type move in typical "buy the rumor, sell the news" fashion, or whether it is a real breakout with likely continuation.

From a technical perspective, a very large gap up to a new multi month high seems rather likely to be filled over the next week or two from statistics I have seen.  And as seen in the hourly chart of SPY above the MACD is the most overbought it has been in months and is just starting to cross down into a sell signal.  However there is no divergence on it, suggesting that even if a pullback of some degree occurs soon, the market may need to under go a period of "slowing down" before it is ready to pull back toward that gap up.

There is nothing that clearly invalidates the possibility of the upward pattern completion that I suggested in the previous update.  However, there is no confirmation of any sort that a high is in place at this point.  So from perspective, any move BELOW the 12-31-12 low would be a sign of significant weakness for stocks.  If you think about it, if this pop higher truly shifted the market opinion and cleared the way for a move higher, then any price move back below that pre-news level, would suggest that the news did not really change much.  In other words it may have just been an exhaustion type blip.

The huge drop in volatility the last couple days may be offering an ideal time for purchasing put protection at this point.  I personally am watching the daily MACD and weekly MACD charts on the indexes for a possible shorting opportunity.

On a side note, the NASDAQ seems to still be positioned well to form a head and shoulders top pattern.  I will have more to offer on that after next weekend when I can see the CoT reports that cover large trader response to the recent news and extreme price movement.  If we see the "smart money" selling heavily on the news, then that would suggest a likely failed breakout attempt in stocks here, and a probable lower top in the Nasdaq which could form the right shoulder.

AAPL has been weak relative to the market, which may be a negative for stocks.  Earnings is coming up in a couple weeks, so that could also spark a big price move in AAPL and may give some solid indication for the future direction of stocks.

New Video Available and Stock Selection Service Enrollment

I have recorded a new video this weekend updating members of my mailing list on the current market position.  I also have begun a stock selection service based on my Integrative Harmonic Trading methodology.  And I am opening a discounted enrollment period for that service through the first week of January.  I will do that from time to time dependent upon market conditions.  In the current case, I think the service will provide outstanding value to subscribers over the near term.

CLICK HERE TO WATCH THE NEW VIDEO

The methodology integrates general market timing and analysis (some of which I frequently detail in this blog) along with what I believe is that best harmonic pattern identification method available.  But because the timing of low risk and high reward trade entries will be dependent on market turning points to a large extent, there may be periods of weeks or months were the most ideal opportunities have passed or are yet well ahead of us.

So if I was a new subscriber to a service, I would want some good opportunities right off the bat.  And that is what I intend to achieve with opening discounted enrollment periods at times when I expect the market conditions to be offering an abundance of good opportunities.

If you would like to receive future notice of discounted enrollment periods and occasional additional market updates, then you can put your name and email in the form on the right side of this page.

With that I wish you all a safe and happy New Year!  It's always an exciting and hopeful time (I think anyway). 

I will be traveling for a couple weeks and video updates may be sparse, but I will still post charts and analysis as appropriate.

All the best,

Pete

CLICK HERE TO WATCH THE NEW VIDEO

Early 2013 Stock Market Forecast

Click on Chart to Enlarge

Near Term 2013 Stock Market Forecast

The chart above is XLB which is the materials sector ETF.  I have chosen to use this chart rather than one of the major market averages because the pattern looks more clear and looks similar to the summer of 2011 topping pattern, so I may draw an analogy to a price pattern that I forecast at that time.

Several country ETF's and commodity intensive sector ETF's (energy, materials) appear to be completing an upward flat pattern that began in early September.  The ideal time expected time for wave C of the upward flat pattern is completing today, but may extend until about Jan 7th.  Ideally when wave B takes much longer than wave A (as in this case), the C wave will take about half as long as A + B.  If it takes .618 as long, that would project a high of Jan 7th.

The shorter term price action and technical analysis suggests that there may be another push to at least slight new highs for this rally off the November low.  That could create an ideal bearish divergence on the daily time frame.  Given the relatively consistent seasonal tendency for price gains around Christmas to New Year's, that would seem likely.  Also it would be common for the end of C to push above the dashed parallel channel line on the chart between A and C.

 Now most pattern analysis is very subjective, but imposing logical rules upon the pattern and post pattern price action can bring pattern analysis toward a useful/objective form of analysis.

In this case of the current flat pattern there are specific requirements of price action to confirm that the pattern I am suggesting actually did/is taking place.

1. The first requirement after a possible high completes will be for the wave C trendline to be broken in less time than wave "v" of C took to form. (not yet clearly identifiable on chart)
2. Then the entire wave C move must be retraced in less time than it took to form.  So this would suggest prices below the November low in roughly 2 months after the expected high.
3. Then for further confirmation, the X-B trendline (in dashed blue) should be broken in less time than wave C took to form. Since that trendline is downsloping, it implies considerable weakness ahead at this point.

 So while I don't know whether this is occurring, the pattern is reasonable and the expected move will be extremely large and fast. I would strongly suggest any long trading positions have a moderate to tight GTC stop in place at this point.

If this pattern plays out as suggested, February or March 2013 put options could stand to make considerable profit.  Ideally a put purchase could be made on an hourly chart MACD cross to the downside after prices potentially push to a new rally high over the next several days.

The obvious support under the market is in the area of the June 2012 and Nov 2011 lows.  I would anticipate price moving to that region before attempting a rally.  However, a typical leg down in a bear market, if that is what is to come, is on the order of 4-5 months before a 1 month low to high correction.  So on that account, we may be set for much lower prices into roughly June of 2013 before a major rally attempt.

This following posts are taken from the final move up in 2011 as a very similar pattern completed and in July 2011 I forecast a large move down in stocks based on the pattern.  You can read those for further understanding of the current pattern possibilities.  In the current pattern, the break of the Sept 2012 low is analogous to the break of the April 2011 low in those posts.  It implies that it is unlikely for price to make a new high above the Sept 2012 high, but will likely come close.

http://stockmarketalchemy.blogspot.com/2011/04/possible-pattern-completion.html

http://stockmarketalchemy.blogspot.com/2011/05/spy-short-term-oversold-at-gap-support.html

http://stockmarketalchemy.blogspot.com/2011/07/possible-completion-of-flat-pattern.html

Additionally I will refer back to a recent long term outlook post I made.  It appears as though the second scenario in that general outlook is coming into play.

Some outstanding short selling opportunities are setting up and nearly ready to trigger at this point in a number of individual stocks.  I have made a new free video update available to members on my mailing list detailing some of those.  You can access that by clicking on the link in this paragraph or by filling out the form on the right side of this page.

2013 Stock Market Forecast Video 

This video covers further technical analysis details and set-ups to watch for over the coming days or weeks as well as "smart money" analysis of the CoT report.

Technical Analysis and CoT Review

How to Use Fibonacci Retracements in Harmonic Trading

How to Use Fibonacci Retracements in Harmonic Trading

I have recently created an intensive and integrative trading course detailing my personally developed and researched harmonic trading method for trading individual stocks.  The course content is much different than the content on this blog.  If you want to learn a way to trade stocks for big gains that can be used for trading or investment purposes in every market cycle, then please consider taking this course.  I promise it's great stuff and I give you a 100% satisfaction guarantee or your money back.  It can be used on any time frame, but is most applicable to a daily or weekly time frame in order to integrate all the principles together as shown for maximum winning percentage and profit potential.

I'll have a new time sensitive video going out this week special for members on that list.

If you would like to read more about this harmonic trading course click on this link.

If you would like more information on some basics of the method to use right away in your trading, then fill out the form to the right of this page and follow through with the links or click on this link to my stock market forecasting mini course and fill out the form there.

The video above gives a brief introduction on how to look at Fibonacci retracements in context of harmonic trading patterns.

Fibonacci Retracement Video Highlights 

Fibonacci retracements can be used in conjunction with harmonic pattern identification in order to predict in advance the most likely price reversal zone for a stock.

I use extensive fibonacci inter-relations in my harmonic trading course in order to create one of several "layers" of probability backing my trade.

This video shows a basic three retracement approach applied to ABC patterns that are smaller than a prior move up.  Overlapping of the Fibonacci retracements in a small price region suggest harmonic proportion in the price chart, and this is the type of relationship you want to see in harmonic trading candidates.

Watch the video, and hopefully it will help you in your trading.

-Pete

Stochastics Bearish Divergence

Stochastics Bearish Divergence on the Stock Indexes Daily Time Frame

Click on Chart to Enlarge

The chart above is DIA which is the Dow 30 ETF.  It formed a bearish engulfing pattern today which is a bearish top reversal candlestick.  The reversal took place at a 78.6% fibonacci retracement of the move down since September, and there is a classic bearish divergence on the stochastics study under the chart.

Based on the multiple time frame momentum set-up and the price pattern, I am expecting a high to occur soon.  So this could possibly be a very significant high.  The ideal time frame for a high is not until next week from my perspective, but that could be a little anal retentive.

If the stochastics or MACD turns into a sell signal soon, it could be a very profitable signal from my perspective.  

I will update in detail in an upcoming post.