Yesterdays breakdown was a good start and went a long way towards resetting the oscillators so that buyers could get back into the game. Volume was fairly strong, so that helps the case. Tuesdays move was simply a correction to a strong uptrend, and that correction is not over in my opinion. I don’t believe this is the start of a distribution cycle, and eventual reversal.
A 3-5% correction would be just about right, well yesterday was only a 1.6% move. It’s a good start, but in my opinion the selling isn’t quite done yet. Not only do we need to reset the oscillators, but we also need to reset sentiment. That is… inject some fear into this market. Until we do that it, it will be difficult to move up.
The thing that still worries me is that financials are still a very weak spot. They have not participated at all in the broader rally, in fact financials are in a Bear market, while every other sector is in a Bull market. It’s hard to imagine further bullish action without the Financials getting back into the game. Just keep that in your back pocket, Ok?
AAPL is a Gift
Did you catch Apple yesterday? It ended down 2.8% and was down almost 6% at one time. I’m a little on the fence as to whether AAPL should be scooped up at this price or not, I think there could be more downside. In either case, it looks like a good buy to me. It wouldn’t surprise me if AAPL could be picked up below 300, perhaps down to the 50 day EMA at 280.
Let’s face it, Apple is the best run company in the world and has redefined the consumer electronics space. Apple is also poised to redefine the business mobile space as well. I don’t think any other company, RIM or Microsoft, has a snowball’s chance in hell of giving Apple serious competition there.
I’m not going to put out any specific Swing Trade setups just yet, I’m waiting for more selling. What I am doing is building a list of potentials. So, let me tell you what I’m looking for once the market appears to have finished selling off. I’m looking for charts showing big wedges with price coming off the top of the wedge and meeting a rising 50 day moving average somewhere in the middle of that wedge. See the attached chart, click to enlarge.
This particular setup requires a fairly tight stop because the MACD is still pointing down, and because there are gaps just below that could be filled in with extended selling. But it is illustrative of the type of setup you should be looking for after a correction.
NOTE: There are a lot of leading stocks that have very similar setups, the difference is that they are not so close to support, in fact they appear there’s much further to go. So, please don’t get excited and start taking positions with this setup potential. Instead just start building your list of candidates.
Let’s Be Clear On Levels
This morning there seems to be a bit of a snap back, which is not unusual, but the chances that it will retake 1170 are not good, the odds are that the selling will continue for the coming days, perhaps even over the next week or more. The good start was the result of unexpectedly good earnings from Wells Fargo. Obviously this sparked interest because the financial sector, as mentioned earlier, is in deep doo doo.
I don’t expect days like yesterday, but I do expect that a respectable bout of selling to complete this correction will land us somewhere around the 20 day or even 50 day exponential moving average (EMA). So, on the S&P 500 index that equates to approximately 1152-1156 and 1132 respectively.
From the chart below you can see that the 50 day EMA lines up nicely with a 38.2% fibonacci retracement. And the 20 day EMA is in the range of price support from the February highs of 1152. Click the chart to enlarge.
Tagged as: AAPL, Correction, S&P 500