The charts are a mess tonight. While the big picture view has shifted somewhat over the past month, my daily short-term preferred counts have been on an exceptional win streak since the end of January — catching the lion’s share of the rally since 1307, and a good number of the turns. But tonight I’ve looked at the wave structures across markets, and really feel like the market’s quite undecided, and could go either way right here.
I’m leaning toward the idea that there will be more downside in store for this market over the short term, but my confidence is only marginal. However, I’ve found a pattern in the New York Composite Index (NYA) which has nice clearly-defined breakdown or breakout levels — so we can simply wait for the market to tell us what it wants to do next.
The first chart I’m going to share is the bigger view of the NYA, annotated with the interpretation I’m leaning toward. The second chart is short-term, and annotated with the clear breakout/breakdown levels.
This next chart shows the clear levels to watch. But before the chart, this next little bit of discussion is geared toward novice traders: a breakout or breakdown through a key level by no means guarantees that the market will follow through. The key levels do, however, generally give you better odds of follow-through in the direction of the break — and, more importantly, they give you levels to work from to determine stops and entries.
Usually when the market breaks a key level, it will return to that zone to back-test it. That back-test is usually considered the “safer” entry point. If the market is unable to penetrate back through the key level, the trade is usually good. However, it’s always important to be on guard for whipsaws; so if the market breaks-out/breaks-down but then returns to that point and penetrates significantly back through the break point, it’s likely you’re in the process of getting whipsawed — and it’s usually advisable to close out and wait for another trade, or stop and reverse to the opposite trade. Otherwise you risk turning a minor loss into something more substantial, because whipsaws are often followed by strong moves in the new direction.
Anyway, the chart below isn’t as detailed as the first chart, but indicates the levels to watch. Aggressive traders could play off the trendlines, and then use the key levels noted as further confirmation of direction.
The next chart is the S&P 500. The fifth wave up may have completed yesterday, though I’m not crazy about the structure. Also, the labeling on this chart doesn’t match the NYA preferred count. After studying the NYA, I’m more inclined to think that no matter what happens today, there’s still another leg up coming after any correction. I will solidify, or adjust, this chart after the market gives a bit more info. In a more normal market, I would be convinced a decline was due right now — but this market has certainly fooled us all a number of times already.
If 1335 doesn’t hold as support, there’s a bit of an air pocket down to 1321.
Yesterday, Apple had its first bad day in a while. It gapped up and then reversed strongly on heavy volume, thus at least temporarily thwarting investors’ plans to drive Apple’s valuation so high that it becomes worth more than everything else on the planet combined.
There’ve been 3 other times in the past 15 years that Apple has rallied at least 2% to a new 52-week high, then reversed intraday to close down at least 2%. Each time, the SPX declined at least -6.8% at some point during the following month. Two of the dates were 7/9/98 and 8/19/98 — the third was 10/11/07, and is shown on the chart below. (Statistical data courtesy of SentimenTrader.com)
So that’s about all the news that’s fit to print. In conclusion, the short-term charts appear a bit hazy, so it’s best to let the market dictate what it wants to do next, by paying attention to the key levels outlined. The uptrend is still technically intact, though the market is now showing some signs that it may be getting ready for a more significant correction, and the historical data shows that Apple’s behavior yesterday is yet another warning sign that this rally may finally be getting tired. Trade safe.