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 breaks....watch 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.

Another Interpretation on Silver Price/Form

Click on Chart to Enlarge

See the chart for notes on SLV. Because the expected time of wave C to end is upcoming in a couple weeks, and the decline has been dramatic, I think it best to place exit orders for SLV, and then see what the next rally looks like with the expectation of re-entering short at higher prices.

Place GTC "buy limit" orders to cover/exit the SLV short trade at 26.00.

Clarification on SLV

For clarification, a couple posts ago I had said to place a GTC buy stop on SLV at 36.50. I should have said "move" the buy stop to 36.50. That was only intended for the open SLV short trade. It is not a new trade recommendation to go long silver.

So that stop is a couple cents above the high of the breakout/breakdown bar on SLV that closes below the lower bollinger bands with the bands expanding. That should allow a lot of play room for SLV, and still have a small profit locked into the trade now.

Silver Update

Click on Chart to Enlarge

See notes on the chart. The initial target was met on the silver cash and nearest futures but the SLV etf fell short of the corresponding target by about $1.50. So SLV may consolidate above that level now, but I think it will be just part of a larger bear market.

I think that prices may form a triangular consolidation here off of yesterday's low. But after whatever rebound we get here, prices should continue lower.

On related notes watch SSRI for a short entry any time on a back test of a broken head and shoulders neck line on huge volume. Also, SLW is hovering above the neckline of a beautiful head and shoulders pattern. I would sell the breakdown of the neck line on a sell stop (~30.50) because it may not see a backtest of its neckline the way silver prices are situated.

Reader Feedback

Is anybody else out there having issues with their broker's computer system or exchange data problems, etc? Please comment if so.

Trade Adjustments

Place a "day only" order to sell TWM at a limit of 55.36 for Tuesday 9-27-11. There is powerful bullish divergence on the underlying IWM/Russell 2000 index. While my previous post is still my main line of thinking here, the current set-up is very similar to March 2008 where after the initial meltdown, there was a retest of the low (some indexes undercut it and some didn't just like right now) and then a more substantial and broad-based rally before continuation of the downtrend.

Also there are some time relations between the recent moves that could place a bottom in at the recent low and then a move up into early November. So, I'll exit this trade here with a possible re-entry if conditions look right in the next few days or more.

Also, place a GTC buy stop on SLV at 36.50. Given the dramatic swoon in silver, I have every reason to believe we have seen a major high. Also, a few weeks back I detailed several time frames on gold and suggested a possible MAJOR top. I still think that is most likely the case. So we should see silver and gold continue down over the coming months and continued strength in the US Dollar.

However, the time relations between the prior moves in silver don't suggest a bottom for this move in silver until mid to late October. I am tentatively thinking around Oct expiration. With 3 huge gap downs in a row, today's rebound is to be expected in silver. However, I think that a re-test and undercut of the low is likely in order to create some divergence on the daily chart before a sustained rebound. Also, the $26 chart level is the really the first chart support from the last low in the uptrend before the peak. From experience, I expect that low to be exceeded to wash out sell stops before a more substantial rebound. I have GTC limit order to sell those Oct 34 puts I am holding @ 8.00.

As a side note, if we get a lower swing high in TLT/bonds I think a short is in order. I may post a trade on TBT if things look right in the coming days.

Possible Rally to Fill Thursday's Gap Down

Click on Chart to Enlarge

There is a historical tendency for large gap downs to be filled relatively quickly. I would have to say that when that gap is in a consolidation zone that is even more true, as opposed to when the market has broken to new lows.

See the notes on the chart for what I think is a likely scenario here. It seems to me that it is a function of the underlying order structure of the market that the market makers push to take out all the stops below all the swing lows of the rally which "causes" this typical pattern. Once that stop cleaning is accomplished the market is free to rebound, but any new break below that stop cleaning low is likely to lead to significant downside follow through.

So watch for that here.