Market Performance, Apple and Natural Gas Updates

I wanted to use this post to talk about few things I'm seeing in the market and around the financial blogosphere. Firstly, Apple (AAPL) has reached its second major level of $120. Earlier, I wrote about AAPL at a critical juncture when it was trading $150. If you caught the break to the downside, you made a quick and easy 30 points. Now, I want to put it on your radar screens again as it has reached an even more important support level of $120. You can buy the dip and stop out below the lows of $115, or follow whatever your rules say about placing stops.

The market is extremely oversold and the fear indicators are starting to head higher. However, that's not to say we can't go even lower. I'd say try to play AAPL from the long side here. However, if it takes out your stop, swing it to the short side because AAPL will have violated a major support level. The technicals are really your only guide to the market right now as fundamentals and logic have been thrown out the window a long time ago.

 click to enlarge

Secondly, I want to highlight again the great work my man Stewie is doing over on his site. In addition to the fear indicators that I wrote about on Wednesday, he has an update that was posted yesterday, comparing fear levels to the last bear market we saw in 2002. As you can see from the chart, tradable bottoms have been put in when the VXO has hit 50 or so. In addition, as he points out, the VXO can also get as high as 50 on numerous occasions. So, don't necessarily expect this to be our only trip to levels this high as the credit crisis and lagging economy continue to play out.

He also points out that the 52-week low list is now extremely long. Check it out.

click to enlarge

Thirdly, I want to point out an opportunity in Natural Gas (UNG). All we all know, commodities have been hit hard. However, with the chart sitting where it is, I think it’s worth a play here because it offers some solid risk/reward and a very clearly defined stop. In addition, I still think natural gas is poised to benefit in the future as I wrote about in my piece about how to play energy for the intermediate and longer term. The Pickens Plan has been gaining ground and even if it does not succeed, it certainly has helped at least raise awareness about natural gas as an alternative.

Turning to the chart (brought to my attention by Steve Puri); we see a very clear level of support at $33 in the United States Natural Gas Fund. Now, in the past, I've stated that there is no such thing as a triple bottom. Therefore, we'll see if that statement holds true, as this will be the third time UNG has tested support in the $33 region. The horizontal line drawn below represents your line in the sand. If it stays above the line, you get long, and if it breaks the line to the downside, it’s time to get short. The market is crazy right now so make sure you use a tight stop whichever way you decide to play it.

click to enlarge

Lastly, I want to point out an excellent study by Rob Hanna over at Quantifiable Edges. What he's looked are huge market selloffs/tradable bottoms in order to identify which names typically benefit the most from the rally that results from the tradable bottom. Since I feel we're getting closer to that event, I thought it was relative to point out. Rob has noted that basically, the stocks/sectors that held up the most in the downturn typically do not benefit the most in the ensuing rally.

His study from the January selloff/bounce indicates that names, such as Wal-Mart (WMT) or Johnson and Johnson (JNJ), which survived the selloff only rallied modestly in the ensuing bounce. However, as he points out, names/sectors that were beaten down hard such as Home Depot (HD) and General Motors (GM) rallied substantially when the time came. Now, that's not to say that the consumer staples like WMT and JNJ didn't rally as well, because they did. However, in the context of the rally, they underperformed.

So, simply put, think of it as a role reversal. Once the market capitulates and then rallies, the past underperformers become the outperformers and the previous outperformers now become the laggards. Does this make sense? I highly recommend checking out Rob's January study here and follow up here.

Sources: Stewie, Steve Puri, & Quantifiable Edges

Disclosure: None

Comments

[martins:]

"clever" and all wrong

2008 Sep 19 09:25 AM

[kend:]

There are also many technical divergences from the falling price that indicate a trend reversal to an uptrend; e.g., rsi, mfi, & macd.

2008 Sep 19 01:15 PM

[Brandon:]

If there's no thing as a triple bottom what happened with GM at $10?

2008 Sep 19 02:03 PM

[pockyclips ...:]

The cat is usually dies after the 2nd bounce.

2008 Sep 20 04:03 PM