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Markets Break the Lower Wedge Line & Apple Sells on the News

Its official! The markets are in full blown sell mode as major technical damage is done on the DJIA and S&P 500. Over the weekend, I wrote a post warning of the major 10-month bearish formation set up on all the major indices. These formations are now in the process of unwinding as we got follow through on Friday's sell off. The intermediate term target on the S&P500, according to the current trend, sits between 980 and 1010. NASDAQ support sits at 2025, QQQQs at $41.50 and DJIA at 9400. Note that this article is a follow up post to two recent articles I authored entitled Very Bearish Intermediate Term Technicals Indicated in the Markets and Markets Failed to Break the Upper Trend Line.

My current strategy is to buy if one of two scenarios play out. If the markets retrace all the way down to their support lines (lower trend line and the ascending wedge retracement line), I'll be looking to go long QQQQ calls. If on the other hand, the markets bounce before reaching the lower trend line, I will be looking to buy on the break of the upper trend line. Personally, I think the better buying opportunity is at the lower trend line as I think the risk is significantly reduced on a position down there rather than on a position at the start of a new up trend.

Remember this strategy, while it may work for me, may or may not be suitable for everyone's circumstances and though I make my own personal strategy public, my readers should view this as nothing more than an intellectual exercise or as an opinion regarding the markets. Before ever considering making a trade on information contained in this or any other financial blog, investors should very strongly consider seeking advise from their own professional financial advisors. As volume has continued to contract, I'm expecting a snap-back rally sometime this week. Perhaps early Tuesday. But I think any bounce in the market will surely be met with some selling pressure and so I think the intermediate term is lower from here.

Regarding Apple
: As I noted in my posts last week, how Apple traded on its iPhone announcement would be telling. What I saw on the minute by minute live chart is the stock tank as the announcement came to an end. This tells me that rather than the broader market dragging Apple down, I think that Apple's sell on the news was a contributing factor in today's sell off. This also tells me that one of the biggest market leaders, Apple, is beginning to weaken as a market leader which doesn't look so good for June. I still think that Apple will bottom in July before earnings are released and if the market bottoms before then, I think Apple rallies and rallies hard. I'm still very much a bull on Apple's fundamentals as I think it is the single best stock in the S&P500. Yet, given the current macro-economic environment and the rampant bearish sentiment on Wall Street I don't think we see any progress in the markets until, as Ryan Iskander at Matrix Analytix puts it, the market reaches a sort of equilibrium of buyers to sellers at the 1010 level on the S&P 500.

Disclosure: At the time of this writing (Monday, June 7, 2010 10:02 pm), the author holds no position in the equity markets though continues to explore taking both long and/or short position at any time. The information contained in this blog is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with their own professional financial advisors before acting on any thoughts expressed in this publication.