S&P 500 and Apple Playing Out Bearish Patterns 13 comments
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Back on December 12, I declared that the Bear Rally was over. Although it may have seemed somewhat premature, especially after the auto-bailout injected at least some temporary life back into the market, it turns out the call was spot on. At the time my analysis was based on the Bulls' inability to hold the 20 day moving averages, and advance through the 50 day moving averages.
At the time of that rally ending call, Apple (AAPL) was at the peak of its rally, having gained nearly 24% off its November lows, at least intraday, by hitting 103.60 on December 11th. It was soundly rejected by strong resistance provided by its 50 day exponential moving average. The next day the stock and the indexes took a pretty good hit. That was my first clue, that if leaders like Apple couldn't break through such levels with all that momentum, and if the indexes couldn't hold their 20s, then this rally was a bust.
click to enlarge
So, let's fast forward to Monday, December 22. Since that call, the markets and Apple have been steadily losing steam. Apple showed far more weakness than the S&P, as it quickly lost critical support at 95, then flirted with its next level of support at the 90-91 range for most of last week. The S&P 500, in the mean time, was setting up into a rising wedge pattern with negative divergences on the MACD building. The support line for the S&P, or the line of demarcation, was approximately 880. Should it take that out with force, then the pattern should play out. Well it did, by dropping nearly 2% below that level. It would have been much more, perhaps as much as 4%, but with extreme oversold conditions on the near-term charts, the indexes mounted a late session rally and recaptured a significant portion of downslide.
Now, did that support level get crushed? I'd have to say no. But the move down was still impressive throughout most of the trading session, only to escape being crushed by the late session rally. You can see the rally on the chart above marked by the last white candlestick. The thing is that all I've been hearing and reading from traders and analysts all this past week is how they were expecting the Retail Rally to kick in at any time. But it never happened.
The Bulls have their backs to the wall! They need to recapture that 880 quickly and forcefully if they want to stay in this game. The longer the market stays below this level, the more emboldened the Bears will become. If we move another 2% down from here, then the Bulls might as well just pack it in, because we'll be retesting those November lows in short order. It's going to be a tall order, as the volume has dried up due to hedge fund and 401K redemptions, plus traders are just worn out, and many are simply taking a break.
As I wrote this Tuesday, the futures were flat to down, and there were a number of big economic reports about to come out. The big ones were the GDP and Consumer Confidence. My guess is that there will be nothing to give the Bulls hope, and that we may get a small rally to unwind the oversold conditions in the near-term charts, but the daily and weekly charts have not such oversold conditions, and as a result, this market will continue it's slide.
AAPL is also at a critical juncture, as it just plotted a bearish MACD crossover and is sitting just above critical support at the 85 level. Should the market move down with any level of force, I would expect AAPL to lose the 85 level, which will then become resistance. Once below that level, AAPL investors will find it very difficult to retake. So, my prediction is that if there's no Christmas miracle, the S&P will play out the bearish pattern its in, and AAPL will be heading for new lows.
Disclosure: Author has a position in SPX.
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This article has 13 comments:
Besides, I have no position with Apple. I have taken occasional short positions against the market, as anyone would when a market is being controlled by bearish forces.
Thanks for your posts.
I show a major potential support/resitance line (+ or -.005%) for AAPL at 85.40.
Last night I did a December volume report for the QQQQ at:
www.flickr.com/photos/...@N03/
Click on the chart, then click on the zoom magnifer labeled All Sizes above the chart
At that site you can see a recent analysis I did on AAPL.
Mr Awesome, do not bash Zach for presenting his comments and beliefs. He presented his case with logical thought and as we have seen in the last year, being a professional analyst does not provide you with any further insight to the market as any average Joe has. Even the great Warren Buffet is licking his wounds, so if you want just bullish propaganda in your internet readings, go look at some Merrill Lynch research papers. If you want to get the pulse of this market, however, read the bullish and bearish blogs from both professionals and experienced investors.
Yes, it could be that AAPL follows a pattern that is predictable by technical analysis and its recent decline is the foreshadowing of a further drop to come. And it could be the you have your finger on that pulse. Could be.
Or, it could be that AAPL wanted to go above $100, and was, until December 17th. That is when, after being weakened by downgrades, and inexplicable earnings projections by analysts who can't do math, the uncertainty was further compounded by the no Jobs at Macworld announcement. The latter will end up being a huge benefit to Apple (please refer to my previous comments on SA for more), but the former is simply inexcusable.
I won't waste more words on analysts other than to say that those who miss earnings by $0.40 or more on a $85 billion market cap company should be barred from the profession for gross incompetence. Apple shares some blame in that for sandbagging, but if the analysts could do even the simplest math they would see that Apple will exceed last year's Q1 earnings of $1.80.
I'll put my money where my mouth is; AAPL posts earnings of $1.80 per share on their January 22nd earnings announcement, guaranteed. Could be as high as $2.00
And for the stock? It will probably be punished for some inexplicable reason. Who cares anymore, this particular equity is manipulated beyond belief and shows no tethering to reality.
On Dec 24 11:53 AM TimboM wrote:
> I can't speak to the S&P rally or lack thereof, but wish to focus
> on AAPL.
>
> Yes, it could be that AAPL follows a pattern that is predictable
> by technical analysis and its recent decline is the foreshadowing
> of a further drop to come. And it could be the you have your finger
> on that pulse. Could be.
>
> Or, it could be that AAPL wanted to go above $100, and was, until
> December 17th. That is when, after being weakened by downgrades,
> and inexplicable earnings projections by analysts who can't do math,
> the uncertainty was further compounded by the no Jobs at Macworld
> announcement. The latter will end up being a huge benefit to Apple
> (please refer to my previous comments on SA for more), but the former
> is simply inexcusable.
>
> I won't waste more words on analysts other than to say that those
> who miss earnings by $0.40 or more on a $85 billion market cap company
> should be barred from the profession for gross incompetence. Apple
> shares some blame in that for sandbagging, but if the analysts could
> do even the simplest math they would see that Apple will exceed last
> year's Q1 earnings of $1.80.
>
> I'll put my money where my mouth is; AAPL posts earnings of $1.80
> per share on their January 22nd earnings announcement, guaranteed.
> Could be as high as $2.00
>
> And for the stock? It will probably be punished for some inexplicable
> reason. Who cares anymore, this particular equity is manipulated
> beyond belief and shows no tethering to reality.
I don't think anyone expects any kind of sustainable uptrend here so really the chart is not new. We're looking at an L recovery trapped in a trading range for at least the next 3 months and then after that a slow slope up for the rest of the year.
Nothing impressive but nothing scary either.
You are right to a point about AAPL investors. We tend to be also Apple product enthusiasts who are used to arguing the merits of everything Apple. The day traders probably smell us coming and short the shit out of us as well.
There is a legitimate gripe, though, with analysts who seem to swallow - quarter after quarter - Apple's sandbagged guidance, then do nothing to paint a clearer picture. The info is almost all out there; the historic revenue and unit sales from Macs, iPods, iPhones and iTunes are all out there. There are also various ways to track current quarter sales. The result of this ANALYSIS - what I would expect that ANALYSTS are paid to do - should form the basis of their earnings projections. These analysts are paid collectively millions for their wisdom, which tends to be the following: if AAPL is going up, it will go up faster; if it's declining, it will go down faster. Some insight.
Many of them are going to miss net earnings for this quarter by a HALF-BILLION dollars, and 2009 full year earnings by, let's say several billion dollars. In my opinion, that borders on criminal.
Please remember this number, and remember where you got it: $1.80. That's EPS for this quarter, meanwhile the analysts are generally at $1.20 to $1.40. It's mind-boggling.
Merry Christmas.
On Dec 24 12:23 PM marcumw wrote:
> I like to read the AAPL message boards on yahoo finance to giggle
> at the perverse carnival of bulls rah-rahing any kind of AAPL rally
> and freaking out at any kind of bearish analysis. You really don't
> see that kind of defensive behavior with any other big tech firm.
> Calling an AAPL bull's mama a whore would provoke less a response...Thanks
> Zack for the insight!
On Dec 24 07:50 AM Mr. Awesome wrote:
> This guy is an imposter. He has no special expertise in markets or
> investing. He is merely using Seeking Alpha to push his short position.
My own technical analysis says that the stock could trade as low as 78 in the near term, but not lose its long term upward trend. I expect it to drop towards 80. As to the above analysis,what would Mr. Bass say looking at the chart of the SPY on Feb 7, 2003. Looked sort of like what Apple looks like today.
Complicating the near term is that Apple has too many bulls and too few bears, like the market as a whole. Everyone is bullish and waiting for the Fed magic to work, and January to bring in new money. That's a serious problem. Yet the mortgage activity and the Obama excitement might overwhelm this negativity.
But neither are the technicals rock solid. Technical analysis, like fundamental analysis, is like predicting the weather. You can increase your odds and get it right 2/3 of the time, perhaps (especially when fundamentals and technicals agree), but you can't really nail the future down more often than that. Zach isn’t being tentative enough.
Apple is too fundamentally strong to go down much more--maybe ten points more. There is lots more potential upside--maybe 40 points worth. There are positive black swans in the wings, primarily unexpectedly strong earnings and sales. Apple looks oversold to me--there isn't much extravagant hope priced into it. It should get a strong bounce after its earnings report in late January. (Actually, I expect a rise starting on Jan. 1, when the funds that sold AAPL (to avoid criticism for holding it from investors) get back in, followed by another rise on Jan. 8 after its MacWorld announcements.)