Apple Update, 11-6-11: Studying Apple at Three Degrees of Trend

Much as I like Apple as a company, and mourned the death of Steve Jobs -- Apple's chart is not looking terribly promising for bulls.  When discussing the issue with a friend, one of the topics that came up is how Apple really is (or was) Steve Jobs.  The last products that Jobs had a direct hand in will be released in the fairly near future; and the charts seem to be indicating that either Apple will not recover well from his loss, or the world is going south fast.

From a broader market standpoint, Apple is clearly a huge market leader.  When Apple starts looking sick, it's not a good sign for the broad market.  In my opinion, Apple's charts are pretty clear that lower prices are coming.  By corollary, we can assume that this means lower prices for the broads as well. 

The most bullish short term scenario I can currently see would be if AAPL is forming an a-b-c lower (with wave a and b complete) for wave B of e.  I realize that my labeling of "e" may not fit the traditional Elliott nomenclature; sometimes I label things more for clarity of comprehension for those not overly versed in EWT.  (See wave "e" on daily chart, below... this is the same chart I posted when I called the top in Apple on October 18th).  I would give the B of e scenario maybe 15% odds.

On the 10 minute chart, it again appears that Apple is due more downside, which jives with the conclusion that the October high marked a significant top.  Early targets point to 350-373, though could easily stretch much lower.  Here, the most "bullish" short term scenarios I can see would be:

1)  This is part of an a-b-c as mentioned above (unlikely).

2)  Red Wave ii extends upward in some fashion (but stays below the October highs) before breaking the recent lows (very unlikely).

3)  Red Wave ii is actually a fourth wave, so we make a marginal new low (see black "Alt: 1") then rally slightly before we head down in earnest (possible, but unlikely due to the structure of the move down so far).

The one-minute chart below zooms in on the most current wave structure since Oct 30, and explains why I think the "Alt: 1" scenario shown above is less likely... though still possible:

All in all, I think AAPL presents a very clear case for lower prices.  In my opinion, this is about as good as it gets, chart-wise.  Nothing's 100%, but this chart series is the type that makes you lean into the 90% category.  It's always possible I'm wrong, but I would be absolutely shocked if Apple's next significant move isn't down.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

You'll Never Catch Me, Copper!

Several readers have asked me to draw a chart for copper.  I've actually been working on one for a while, and finally decided to finish it tonight. 

Copper looks, in the words of the famous sheep, "Baaaaaad."  Copper seems to have topped at Cycle degree in 2011 (red "5" label, for Primary Wave 5).  If this count is correct, 2011 marks a major historical top.  To complete the top, copper seems to have put in an extended Wave V of 5, a fairly common occurence in commodities.

Copper's MACD histogram recently rose to -- and is now falling down from -- the highest reading in copper's entire history.  This strongly implies that the bulls have shot all their bullets for the time being.

Concurrent with the MACD peak, copper also appears to have completed a nested fourth wave at minuette degree.  The series of 1-2's I've labeled at the start of the decline this year could all be counted as a leading diagonal wave I at intermediate degree (blue I) -- but I honestly think these waves count much better as a nested 1-2 series.  Either structure is bearish, though, and calls for lower prices.  Due to the threat of overlap at blue waves 1 and 4 (assuming my count and labeling are correct), it appears almost certain that copper has now completed its entire wave 4 rally and should head lower.  

The chart's top panel shows the SPX.  Copper and the SPX have been strongly correlated since 2007.

Copper seems to be hinting that the stock market's

Minor Wave (2) rally ended on October 27.

The completion of red Minute iii is copper's next target, at roughly 2.79.  Percentage-wise, this target lines up very well with the current expected leg down in the stock market.  Copper's red Minute iii will likely bottom as the SPX bottoms Minute Wave i of Minor (3).

Trade above 3.75 would indicate Wave 4 is still unfolding; trade above 3.81 would call the blue 1-2-3-4 labeling into question.  Trade above 3.85 (in the near future) would be problematic for the entire count.

At the minimum, copper should ultimately revisit the 2008 lows again.  It could go a lot lower.

Please note that the little bit of sketched-in price lines I've drawn are certainly not intended to be time-accurate.  With the long-term chart, I simply didn't have room to draw it in a fashion even approaching an accurate estimation of time.

I have to tell you, after studying this chart (and several others) tonight, I am favoring my preferred bearish count in the stock market even more.

As a sidenote, some readers have asked how to bring the charts up in larger format.  To do so, simply right-click and select "Open in New Tab" (or "window").  This tiny default frame is Blogger's doing, not mine -- but that's how you can get around it.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

Two possible counts of today's action...

Note: This is just a super-quick update for my regular readers, regarding Friday's action.  I'm leaving out all the descriptions and explanations -- so if you're a new reader, please see yesterday's article for context and more detail.

As I see it, there's really two main options left for describing today's move:

1) the morning waterfall was an impulse wave down with an extended fifth wave.

2) the decline was an a-b-c (x) wave.

My preferred view is that it was an extended fifth, and the snap-back rally is either over, or almost over.  New lows would follow. 

Yesterday's high is the knockout for the extended fifth preferred count.  If the decline was an (x) wave, we are forming a triple zigzag for preferred wave (ii) and could still go as high as last Thursday's top.  Monday will probably answer this question... but I wanted to hear any comments or thoughts.  (Plus I wanted to move yesterday's lengthy discussion to a new thread.)

SPX and NDX Update: Retracement Rally Hits Targets; Top May Be In

While the rally keeps hitting my targets perfectly, it is doing so in a very "ugly" fashion, and has now made charting the next move a bit difficult.  Some moves are clean and a pleasure to chart... other moves make you want to take up a new career; ideally one that involves counting things that are really large and not open to interpretation, like elephants.  This is one of those moves.  But I hear the Elephant Wave Theory field is flooded with applicants right now, so I guess I'm stuck.

The top may be in, but with the wave structure so messy, it's hard to predict a direct and immediate reversal.  After cross-studying a number of indices, I'm open to the idea that there's one more new high coming -- but I'd give maybe 55% odds to the new high, and 45% odds to the rally being complete.  If you forced me to give exact targets for any new highs, I would say 1267 SPX and 2385 NDX -- so it’s probably safe to say that the rally is, effectively, over. 

The rally retraced right into my target zones, so whether it reverses immediately or continues slightly higher, I'm content with that for now.

If by some chance you're just joining the discussion, it would be helpful to familiarize yourself with The Big Picture chart, which has tracked well enough so far that I haven't felt the need to update it in over a month.  That article also contains a brief introduction to Elliott Wave Theory (unfortunately, however, it contains nothing on Elephant Wave Theory).

The first chart is the SPX chart, with the best-fitting way I can find to label the jumbled mess that has been this rally.  On this chart, you can see that it appears the SPX is in its final wave up, so it may have topped yesterday.  Just going off this chart, one could be fairly convinced that the rally is over.  The NDX chart (the last chart shown) looks like it might need another high, which is one reason I’m split on the two views.

If this is indeed a second wave retracement rally, the only rule by Elliott standards is that it doesn't exceed the top; i.e.- last Thursday's high.  Second waves are allowed to retrace 100% of the prior move (but not over)... so the targets posted are my preferred view, but the rally is free to exceed them if it wants.

For several days, I have also been showing the chart which has the alternate bullish interpretation of the current wave structure.  I remain disturbed by the fact that the decline off last Thursday's high can count so well as an a-b-c... however, if that's what it was, it was a very forceful correction... but C-waves are known to trick people, even technicians, into believing the trend has changed.  I am still giving this alternate count (chart below) about 30% odds.  A move below 1197 SPX will knock this count out.

One more chart of the SPX, then I'll move onto the NDX.  The next chart shows a longer-term view of the SPX and how it has once again gravitated back into the area of the head and shoulders neckline.  Depending on how one draws the neckline (intra-day lows or closing lows), we are either there already, or a few points away.  It will be interesting to see how the SPX responds to this area now that it has been violated once previously.  Theoretically, this area should still be a battleground and potential reversal zone.

The final chart is the short-term NDX chart.  The NDX is also in the zone where we could expect a reversal.  On this chart, I have sketched in a possibility as to what may happen today/Monday, if a new high is coming.  It appears possible that the NDX might be in the midst of a small wave iv.  IF that's the case, and due to the wave structure, that's a big "if" -- the market would start the morning off with some sideways/down action, which should eventually resolve to the upside.  Again, the NDX has already hit its expected targets, and the rally may be fully complete, so additional upside may or may not be forthcoming. 

If we head down hard at the open, and particularly if the NDX trades below 2347, I would no longer expect new highs.  Of course, that would be barring some even stranger pattern formation going forward, such as the (z) wave of a triple three or zigzag.  Triple zigzags are pretty rare, though.

Again, if the preferred count is correct, the ultimate resolution to all of this will be new lows on all the indices.  Beyond that, not much to add over yesterday's article.  Trade safe!

SPX Update: Slight Adjustment Still Leaves the Big Picture Bearish

As I opined many times in the past, there was no new Quantitative Easing program announced by the Fed on Wednesday.  In fact, the Fed announced only one new program yesterday, titled "Operation: Huh?"  Under the terms set forth in "Operation: Huh?" the Fed has finally agreed to start openly admitting that it's basically clueless about everything.  I, for one, think this is a huge step forward, and possibly the most helpful program to come out of a Fed meeting in at least fifteen years.

The charts suggested ahead of time that there would be no fireworks on Wednesday, and both the S&P 500 (SPX) and Nasdaq 100 (NDX) wandered their way up into the target ranges I had posted in Tuesday's update.  The NDX barely squeaked in, tagging my suggested target range by only one point.  Yesterday's targets were, relatively, easy; now things get a little more complicated.

After spending a lot of time last night and this morning on cross-market studies of other indices, currencies, and a few commodities, I have switched yesterday's alternate count into the preferred role.  My preferred view is that this is wave (ii) up, instead of wave 4.  The wave 4 count has now flipped into the alternate position, and is shown on the chart by the black "Alt" labels.  If this is the fourth wave, a marginal new low should follow this rally.  If that's the case, the market is less likely to stage a deep retracement of the prior decline; in fact, any trade above 1264 would knock this count out.

If the indices are forming a fourth wave, there is no telling what they'll do.  To give you an idea of why I say this: the trading range from August until the October low was a fourth wave (of much larger degree, obviously).  If you look at a six month chart, you can see that the only thing that was clearly defined about that move, in retrospect, was the trading range.  Other than that, the indices meandered about for months, almost in a seemingly random fashion.  Due to their somewhat unpredictable nature, fourth waves can be difficult trading environments.

The two targets I like for the preferred wave ii count are 1256 and (if 1256 is violated convincingly) 1267.  I've also drawn up a simple support/resistance chart showing some areas that may create battlegrounds in the future.  This chart also highlights why I like 1267 as a possible target.

I am forced to forego the NDX chart in this update, because I simply ran out of time -- however the NDX should trade roughly in concert with the SPX.  The last chart I'll present is my more bullish alternate count, which is still hanging in there, and has actually moved up a notch to 30% odds.  Unfortunately, the market never reached the level required to knock this count out, so it continues to remain viable.  This count suggests there's one last rally to new highs unfolding now.

In all of the above cases, the expected resolution after the rally ends is a deep decline to new lows.  Once the top is in, I can start calculating targets for the each of the coming legs down.  Trade safe!

The original article, and many more, can be found at http://pretzelcharts.blogspot.com/

SPX and NDX Update: So Far, So Good... and What to Look for Next

On Friday, I was a lone nut in the wilderness suggesting that there was a good chance Thursday's high marked the top.  After the action on Monday and Tuesday, all the sudden a lot of folks have piled on that bandwagon.  That makes me uncomfortable; I don't like crowded trades, and neither does the market. 

I'm not saying that the top call is wrong, just because there's a lot of people joining in now; in fact, quite the opposite: I'm still favoring it.  But the market never makes things too easy... so, sometime soon, we should expect a curve ball to throw everyone off the trail.  Tuesday played out largely as anticipated, so no big surprises there --  but I'm not completely sold on the structure the market has shown us so far.  I would really like to see at least a marginal new low to give this move down a more concrete five-wave structure.

The critical level we were watching to knock out the bullish alternate count -- 1197.34 on the S&P 500 (SPX) -- was not breached on Tuesday.  The current wave down is still a bit murky at present, and could be interpreted at least three different ways:

1)  It was waves 1, 2, and 3 with 4-up in process and 5-down to come.
2)  It was a complete wave with an extended fifth wave.
3)  It was an a-b-c corrective wave.

Of those three options, I like option 2 the least because, even though it's possible, it throws the structure way off balance and I don't like the "look" of it.  So, for the bear case here, I would really like to see at least a marginal new low for this move.  After that, I would expect to see a decent snap-back rally.

The bullish alternate count I suggested yesterday as an outside-shot wasn't weakened a bit by Tuesday's action.  The move down from Thursday's high counts very well as an a-b-c in its current form, which is why I would like to see a new low, preferably below 1197.34, to knock that count out.  If we don't get a new low, calling Thursday the top will remain a little bit inconclusive for the time being.

For this update, I have drawn up two radically different SPX charts.  Chart 1 (marked by the big red "1" -- no affiliation with the movie of the same name) shows my preferred view that Thursday was the top, and an estimation of how waves 4 and 5 might unfold if that's the case.  If you'll refer back to the three options listed above, this chart shows the first two of them.  Option 1 is illustrated by the blue lines and yellow target boxes: this is my preferred view, and what I would "like" to see take place in order to confirm my underlying assumptions that this is the start of a big leg down.  Option 2 is illustrated by the black lines and black "Alt: (i); Alt: (ii)" labels.

Two levels to watch are the 1230 area, above which favors the bulls; and the 1220 area, below which favors the bears.  These two areas have been pretty important battle grounds in the past, and on Tuesday the market just bounced back and forth between these levels all day, further highlighting their importance.

Chart 2 (marked by the big red "2" -- no affiliation with the less popular, direct-to-video sequel) illustrates the alternate count in clearer detail than I did yesterday.  It came to my attention that a number of readers basically had no clue what I was talking when I suggested an "expanding ending diagonal," so this has been drawn to help clarify.  It also shows how the decline could be counted as an a-b-c.  This count still holds at 20% odds for the time being, although with a little luck it'll get knocked out completely in the next few days.

The Nasdaq 100 (NDX) is in a similar position to the SPX.  I have only annotated one chart for the NDX, which illustrates my preferred count, since the two indices should trade in pretty similar fashions.  The NDX in particular looks to me like it needs a new low to complete the move and give more weight to the bear case.  Note the island reversal top, which is formed by the exhaustion gap up on the 27th, and the gap down yesterday.  Despite being fun to talk about, island reversals are, surprisingly, not very reliable patterns for marking trend changes -- so don't read too much into this one... yet.

Beyond the charts, we have the Fed due to announce a bit earlier than usual, at 12:30 EST today.  At 2:15 EST, Bernanke will hold his press conference detailing the Fed's plans, and might even suggest some innovative new ideas on how to further destroy America.  I continue to be of the opinion that there will be no QE3 at this point in time, but, regardless of what they reveal, the market often behaves unpredictably around Fed announcements.  After the last announcement, the market initially sold off very hard, then abruptly and strongly reversed, in a bear trap.  If we got a similar result here, that could form wave 5 to complete (i)-down, then reverse into wave ii-up. 

Either way, if you're planning on playing the Fed announcement, stay nimble... and trade safe.

The original article, and many more, can be found at http://pretzelcharts.blogspot.com/

SPX and NDX Update: Bulls Running Out of Options

On Friday, I assigned roughly a 50% chance that Thursday marked the end of the rally, and the top of Minor Wave (2)-up.  Today, I would move that probability up to 80%.  As far as I can see, there is really only one "last hope" for the bulls at this stage.  But before talking about alternate possibilities, it's more important to talk about what's most likely, so I'll discuss that last hope in more detail a bit later.

The market has now given us solid confirmation of the bear case with the break below 1256 SPX.  If we are now in the beginning stages of Minor (3)-down, this wave should ultimately turn into a waterfall decline to substantial new lows.  First target for Minor (3)-down would be in the area of SPX 800 -- but that target could easily move lower as the move progresses.  But, obviously, it's not going to move straight down, there will of course be bounces and rallies along the way -- so first things first.  The charts below reflect the early targets for this smaller wave within the larger Minor (3) wave.  The SPX chart is first, NDX is second:

The structure off the highs is anything but clear-cut, so I am generating these targets using my assumptions of what that structure is.  The first target zone for the SPX is 1194-1220; and for the NDX 2274-2320.  Unless the market is even weaker than I'm anticipating, we should see some type of bounce in these areas.  Tomorrow, we can look at the next target levels.

It's always tempting to get excited when the market follows your predictions, especially when you were a bit off the beaten path making those predictions in the first place.  The problem with excitement is: I think emotion is the killer of most traders, and it's very easy to become too subjective and start trying to fit the market to your expectations, instead of objectively seeing what's really there.  So I continue to challenge my views, even when they seem to be right.

While doing so tonight, I came up with a "last hope" short-term pattern for the bulls.  I don't consider this pattern likely, but it's not impossible.  The bulls last hope here would be an expanding ending diagonal pattern.  Under this pattern, the SPX would put in a bottom somewhere north of 1197.34 and rally back up to a new high.  Expanding diagonals are one of the only patterns where waves 1 and 4 are allowed to cross into the same price territory, which these waves have already done.  That's why I view this pattern as the last hope for the bulls... because there is little else that's possible given the technical damage that's now occurred.

The chart below is annotated with my preferred count in blue and red, and the bullish alternate count in black:

The bulls last slim hope, as I currently see it, vanishes with trade beneath SPX 1197.34.  Please realize that I'm only assigning a 20% chance to this alternate pattern unfolding -- but as I said, it's still not impossible.  However, if there's one entity that can take a low-probability pattern and make it reality, it would be the Fed.  I'm not expecting any game-changing fireworks out of the Fed meeting, and I firmly believe that QE3 won't happen right now... but, ultimately, that's just my very strong opinion.  So, in the event I'm wrong, there's the alternate count.
 
Assuming my big picture view of the situation is correct, and so far it's played out very well, then the market is in the early stages of becoming extremely hostile to long-term buy-and-hold investors.  If the big picture view is correct, the markets could ultimately see levels that most would consider impossible.

As an additional quick update, my call for an imminent bottom in the US Dollar could not have been more timely.  I posted the dollar update on my blog on Saturday, and the dollar went parabolic on Monday.  After reviewing the wave structure in the dollar, I can say with 95% certainty that the bottom is in for the US Dollar, and last week's low should hold for a long time to come. 

Beyond that, it's getting ugly out there... trade safe.

The original article, and many more, can be found at http://pretzelcharts.blogspot.com/