In the 1980s, Peter Lynch continuously advocated the notion that "earnings drive the market." That appears true, as rising corporate earnings generally results in a rising stock price, and vice versa. So, from a pure binary standpoint, an earnings beat should drive prices higher and an earnings miss should send them lower. Correct?

Unfortunately, fundamental analysis has two forecasts it must make. First, a fundamental analyst needs to forecast the future of a company (i.e. its earnings). Second, he/she needs to forecast how the market will react to those earnings. That second part is what caught so many Apple bulls off guard last week.

To understand what happened with Apple's earnings, which beat estimates last week, we need to understand the psychology behind the stock's fluctuations. This method of thought can be applied to essentially any stock.

It's almost like we have to tell a story about Apple's price history. At $700 dollars a share, Apple was the stock that everybody wanted to own. Few, besides us here (Elliott Wave was saying that $675-$700 was a danger zone) were neutral, let alone negative on the stock.

So then the stock topped. As you can Volume Profile study, a lot of shares were exchanged within 15% of the top in the past two years. (On a quick side note, if one plots down volume into the April peak of AAPL, you'll see that there was tons of selling into that rally, while the September rally was actually halted by the lack of buyers, which could no longer push the price up.)

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Since there were a lot of shares exchanged near the top, there were many "weak hands" who were stuck with losses almost immediately. These weak hands are likely the majority of those who still hold the stock today, which is why every rally has been seen as a selling opportunity.

So let's take Apple's most recent earnings, which was a slight beat. First, the weak hands, already discouraged, are likely swearing to themselves to dump any shares when they can get a small rally. Secondly, those who sold near the top see the stock's downtrend and hear about the company's lowered guidance, so they keep their hands off of it. Then, there are potential investors, who have never bought. A single news event is usually not sufficient to cause long term investors, the ones who really have the impact on price trends, to buy.

Therefore, what is left? Buyers will not touch the stock, and the mass of sellers who bought at higher prices, while not short sellers (just around 2% of Apple's float is sold short), sell into a vacuum, able to continue to push prices down, regardless of the news. That is the anatomy of a downtrend.

So what did we learn? Regardless of an earnings beat or miss, the psychology of the market is important. The only thing that will drive the price of a stock up is more demand than supply, and supply remains clearly dominant in Apple. To see when buyers are beginning to rush back into Apple, a simple relative strength line can be used. When the line turns back up, long term investing, earnings beat gambles, and bullish swing trades will have higher profit potential.

To determine the trend of the RS line, I use a 30 and 50 day simple moving average crossover with the ratio chart. On Thinkorswim, type the symbol (AAPL/$SPX) exactly to retrieve the chart. In the picture below, the red circles represent negative crossovers and the green circles are positive crossovers.

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So until we see another crossover, Apple's downtrend is still intact. Caution advised!

Articles such as this suggest that new cotton plantings will exceed this year's estimates, while this article notes that Indian trade with China should lower cotton prices. In addition, other sources declare that, in the event of any price rise, China will release some of its government stock piles to drive the price down to "normal" levels. All of this is occurring while the individual commodity trader or equity investor could presently not care less about cotton, perhaps one of the most boring commodities since fall of 2011.

So why does the chart of (BAL), the cotton ETN, show a clear upward reversal, and why has cotton climbed almost 20% since January 1st? It's a textbook major Wyckoff bottom.

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First, what drive inflation of all goods? Of course, currency wars, but before those existed. Economic growth. It appears that the economic recovery is accelerating, or at least the trend in government and corporate bond yields suggests. The demand for loans (money) is increasing, driving yields higher, which will be spent on other commodities for business projects, driving demand and prices higher as well for all commodities.

In addition, this bull market, pushing 48 months, is very mature. This is especially evident when considering the length of an average cyclical bull market, 39 months. According to business cycle theory, it is usually at these times in the 4-year Kitchin cycle, that capital inputs, such as raw materials and energy, begin to climb. Once again, this is generally due to improving overall economic conditions stimulating demand for more goods and accelerating business activity.

The idealized chart of asset class leadership, presented by Martin Pring, is shown below. Note that commodities are often leaders in the later stages of economic expansion, which is fairly clear, given the length of this bull.

So why choose cotton for the focus of this article? First, the complacency and bearishness on cotton makes it appealing for purchase. Secondly, most commodities, besides oil, tin, and cotton, are still in obvious, long term. Finally, to a working technical analyst such as myself, the price and volume relationships in cotton show clear accumulation and an upward trend reversal. For the complete video analysis and low-risk entry points, check out my screencast analysis on YouTube for . Remember, if you choose to take a position in cotton, since the commodity is quite volatile, I would suggest pyramiding into the trade.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

AAPL - 20.21%

MSFT - 8.06%

GOOG - 5.75%

ORCL - 5.06%

INTC - 3.62%

AMZN - 3.59%

QCOM - 3.44%

CSCO - 3.14%

CMCSA - 2.25%

EBAY - 1.99%

So, ten out of 3000 companies in the index represent about 57.12% of the index's movement. Even more surprising, the top 50 companies in the index are responsible for around 85.33% of its movement. Therefore, the smaller companies beyond the first few hundred in the index do not really affect it much. The NASDAQ is a large cap index.

When monitoring the performance of smaller companies, my index of choice is the Russell 2000 ($RUT). Year to date, the Russell 2000 has performed exceptionally well, outperforming all of the large cap indices. See the chart below for a comparison of the Dow (black), S & P 500 (blue), NASDAQ Comp. (green), and the Russell 2000 (brown) since January 1.

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While it is typical to see small and mid cap stocks outperform their large cap peers in a bull market, these stocks are also the most sensitive to when the market mentality turns to "risk-off." Very often, small cap indices like the Russell 2000 start to underperform before short term tops and corrections. In addition, small cap stocks often enter bear market territory long before large caps during major market tops. As you can conclude from the chart above, with small cap stocks still dominant, the probabilities do not favor that a major market top will occur in the near future.

So, while the Russell 2000 is an outperformer in the longer term, its short term performance tells a different story, which is why I'm not quite convinced that this current correction/sideways correction has concluded yet. Take a look.

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This chart shows that, while the roughly 630 largest stocks in America have trended sideways over the past week, in aggregate, 2000 smaller ones have moved lower, in aggregate. This short term weakness could spread to larger cap issues, which could cause the market to drift lower in the short term. I do expect a breakout to occur eventually, which should place the Russell back into its leadership role, but until then, investors should be aware of the potential for a further pullback.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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In addition to the bullish base and breakout in the stock, the sentiment on the stock is decisively bearish. This suggests that, if the stock begins to rise, a short squeeze could accelerate the climb many fold. For the full video analysis of the stock, click here. Make sure to view in 720p for best viewing experience!

The last month has provided a slight relief to the consumer, as the average price of gas declined over thirty cents per gallon since the Valentine's Day short term top. Of course, $3.65/gallon is hardly a relief, especially when compared against gas prices a decade earlier, but that's besides the point. The point is that, given current conditions, it appears that gas prices are about to make another thrust upward, and perhaps to new record highs, in the coming months.

Higher Oil Means Higher Gas, Right?

It's very intuitive, since crude oil is a major input in unleaded gasoline. However, it is only one of hundreds of the ingredients that go in the gas tank with each fill. Even so, the price of gasoline should follow the price of oil, right? Sort of.

A quick comparison of the ETF (USO), which tracks the daily percentage change of crude oil futures, and (UGA), which tracks the daily percentage change of unleaded gasoline futures, shows that the relationships that the price relationships that most would consider obvious are quite weak. For instance, the correlation between the two ETFs is 41%, which is only moderately statistically significant. Another relationship measurement, beta, shows that for every $1 crude oil goes up, gasoline only rises $0.69, but UGA is just under its 2008 highs, while USO is more than 40% off of its 2008 high.

For that reason, I suggest for most to use UGA to forecast gas price rises and falls instead of USO. For those who have access to futures charts, use the actual spot price charts of gasoline. In this post, I will be commenting on UGA.

Underlying Strength

The failure of a stock or commodity to become fully oversold represents strength in the underlying. Since November, gasoline has done just that. On the opposite side of that coin, if a stock or commodity becomes fully overbought, it shows strength in the underlying trend, and suggests that any existing uptrend is strong. In January and February, gas UGA became extremely overbought.

In addition, gasoline's decline was halted right at a key support zone before climbing three percent on Friday. The level that gasoline bounced off of was the 38.2% retracement of the entire rally since November, and also the 61.8% retracement of the smaller rally that began in mid-January. Such a strong support zone is expected to hold. If it does not, a proportional target to the downside would sit near $58.00, about 8.5% below the current price.

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The Buy Signal

Price, in fact, gave the trader's buy signal on oil. The decline from Valentine's Day could be described as the consolidation period from a "flag pattern." The pattern is easiest to see on the 60-day chart. The $70 target corresponds to roughly a 10% advance from current levels, or gas prices around $4.05/gallon.

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Given that the volume was weak on the breakout, I would take a half position on this breakout, and then after a pullback, if one occurs, enter the other half of the position. My stop would be around $60, but the probability of that occurring appears low.

For those who would rather not dabble in the commodity world and buy gasoline futures/ETFs, look back to the title. How about you just buy gas for your car today? Happy trading!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

However, without explicit collusion of world leaders, world currency devaluation cannot be achieved in all countries. After all, one can only determine the value of a single currency by comparing it to another. In other words, even central banks with a desire to devalue a nation's currency may not be able to devalue it faster than another. Because of this, the nation's currency may actually become stronger. This article should provide some insight on the winners and losers of the world devaluation war.

One of the clear winners, thanks to Ben Bernanke's monetary policy, which is easy, easier than solving a colorless Rubix Cube, is the United States. Continuing its long term downtrend since 2000 it looks like the US Dollar is once again ready to take a further plunge in value. Yes, that would mean to expect higher prices; maybe not of most consumer goods, but definitely of energy, gold, and likely food.

Just as a quick side note, for gold bugs already getting excited about where this article is going, consider investing in gold denominated in Euros or Australian Dollars. Both currencies have been particularly strong and will likely continue their rises into the future. Therefore, investing in gold this way can achieve even greater returns via both gold and currency appreciation. The best way to do this, in my opinion, is to short a currency ETF, such as UUP, then invest that money into another currency ETF, such as the Euro ETF, FXE. Then, with other money, invest in a gold ETF of futures contract.

The pattern I have keenly watched for the last six months has been that of the US Dollar futures prices. During this time, it has been bouncing around a key support level around 78, while internal measures of momentum are deteriorating. The pattern is a head and shoulders top, one of the most statistically validated technical patterns in existence.

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As you can see by the chart above, 78 is the support level that the dollar needs to hold above. If that level is broken, then the Fed's job of controlling inflation is about to get much more difficult. Continue to watch this level, and if it is broken, begin to prepare for an inflationary period. That means higher borrowing rates, lower bond prices, higher gold prices, higher energy prices, and higher stock prices (for a little while…). That also means that the "inflation sensitive" sectors will likely underperform, such as utilities, technology, and small caps.

Only about two percent away from spitting out a sell signal, the dollar may carry a key to the future of the US economy in 2013. With the large spike downward in the last week, and the continual punishment of US treasuries, I would expect the signal to occur shortly. Eyes open!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.