SPX and Apple Update: Icahn Joins Us on the Apple, Inc. Long Play

Lately, charting the S&P 500 (SPX) has been about as enthralling as reading a washing machine instruction manual.  It's continued to trade inside a seemingly endless, whippy range, leaving us free to imagine whatever patterns we want.  Thankfully, all is not lost for those of us who write about these things: Apple (AAPL) has been a big hit since I recommended it as a long play on July 8, and continues to please those of us who are invested in the high-tech fruit.  Apple made a convincing breakout over resistance yesterday on impressive volume.

Apple's now bumping against resistance from the (assumed) A-wave low.  This is an important resistance zone, since overlap of that price zone would suggest a three-wave decline -- and that would mean the decline was corrective, which would then suggest Apple is ultimately headed back into the 700's.

Some folks believe that technical analysis is a bunch of silly mumbo jumbo -- I would point at my Apple charts of the past few months as a strong hint to those folks that they're missing out on a powerful trading tool.  I first called attention to Apple back in May, and it rallied briefly thereafter, at which point I told readers I would not want to remain long if it traded below 442.  It did so, and then proceeded to drop 50 points.  From there, I projected the the dip on July 8, which I recommended as a buy, with a first target of 460-480 -- and the rest is history.  All of this has been done simply by reading the charts.

Obviously, I didn't have insider information allowing me to project that Apple would jump 5% on its earning announcement, and another 5% on Icahn's buy recommendation.  There was no way I could know these things -- but someone was buying (and we now know at least one of those big players by name), and that buying left patterns in the charts which pointed to higher prices.  As I've asserted for many years:  the charts lead the news.  If you're lacking technical analysis in your trading arsenal, you're missing a fantastic tool.

As noted, bulls aren't entirely out of the woods just yet, but given yesterday's solid breakout, the picture continues to look promising.

In reviewing my chartbook tonight, I realized a minor oversight on the NYSE Composite (NYA).  NYA hasn't broken the May high yet.  I've been leaning toward the idea that there would be another wave up to wrap up the pattern for the near-term, and this realization puts me more strongly in that camp.

Intermediate term, I continue to believe this is will mark the final wave before a solid correction.  The Dow Jones Transportation Average (TRAN) looks to be in the process of forming a topping pattern.

Market to Bulls: "Pay Me Now, or Pay Me Later"

The market has continued to trade within the noise zone, and the question remains whether all of wave v is in or not.  For a bit of perspective and clarity, I'll break down my view on what each time frame holds for bulls and bears heading forward:

1)  Near-term, I'm not certain if the rally has put in the final thrust or not.

2)  Intermediate-term, I believe the market will see a significant correction or worse.  The question is whether that correction begins directly, or begins from slightly higher prices.  My February target of the mid-1700's hasn't been negated yet.  Whether that target is reached or not, I presently expect the market will ultimately end up trading below current prices over the intermediate term.

3)  Long-term, we may or may not have another  fourth wave decline and fifth wave rally to unravel, and we'll have to unravel that question at some point in the future.  The potential exists for a major long-term top in this zone, and I'm presently a bit more inclined to favor that view. 

In any case, I believe the downside potential exceeds the upside potential relative to current price levels.  While the near-term still allows for another wave up to new highs, I would be quite surprised if bears don't win this battle at intermediate degree.  Hopefully that helps clarify my current stance, and it represents a material shift of my long-term stance in January.  I'm no longer long-term bullish, but am now in "sell the rallies" mode until proven otherwise.

I've chosen the NYSE Composite (NYA) to help illustrate why I feel this way.  As I see it, the best-case scenario for bulls right now is a running triangle, which leads to a final rally wave.  Worst case for bulls is the top is in already.  Bears win both those battles at intermediate degree, but may want to await a breakdown in order to maximize probability.  In other words, I'd be inclined to sell either at higher prices or at lower prices.  Taking action directly in the middle of the noise range amounts to a coin flip.

 The S&P 500 (SPX) near-term chart illustrates essentially the same conundrum, from a near-term perspective.  No clear break has left myriad near-term potentials.

From higher elevation, the big picture seems more clear.  The question remains whether red wave v is complete or not, but I would presently expect the downside targets should be realized either way.  The first target of the most bullish count at intermediate degree is the low 1600's (shown by gray wave (4)).  The most bearish count has a final target near the 2009 lows.

No Title for You! One Year!

I spent some time studying charts this weekend, but ultimately there's really very little to add from last update, since the market remained within the noise zone on Friday.  So I've created a chart which will hopefully help readers better understand the big picture outlook.  The chart annotations pretty well explain my thinking at this point.  I've used the INDU for illustration, but SPX would be expected to follow a similar path.

On SPX, there's been no change, and we're still watching to see if the pending bearish sell trigger is tripped.  Despite the fact that ES is about 6 points in the red right now, I wouldn't be surprised to see SPX rally back toward 1700 at the open.  If it instead heads down directly from here, watch for a solid sell off. 

In conclusion, we're still in the noise zone, so there's been no change from last update, and I still feel a breakdown here would likely suggest the beginning of a much larger correction.  Trade safe.

Sentiment Has Reached Extreme Levels, A Bad Signal for Bulls

The market has been range-bound for the past few weeks, but should be close to declaring its intentions.  We've reached an important inflection point, and as most readers know, I expect that we're very close to beginning a significant decline.  While I'm not closed to more bullish options, I'm inclined to stick with February's projection for an important top forming in the 1700+ price zone, and the market has shown me nothing to make me any more bullish that that -- quite the contrary.  So the main question in my mind is how close we'll come to February's target of 1750 +/- before the anticipated decline begins.  As we'll discuss shortly, the possibility exists that decline may in fact have already begun.

After we run through a few price charts, I'd like to share an incredibly interesting Rydex fund chart which should give bulls cause for concern.

Starting off with a chart that shows why it's a bit too early to call the next move with conviction, we can see on the NYSE Composite (NYA) that the market has been noisy and range-bound for some time.  This could be a reversal pattern, or merely a consolidation before the rally continues toward the long-term price target from seven months ago.  We simply won't know until the market makes a sustained break.
 

 
The long-term chart shows that we're presently in the CE ("close enough") zone, but with the market range-bound in the recent past, it's just a bit too early to call whether we've seen all of red wave v yet.

On the S&P 500 (SPX) hourly chart, we're presented with a fairly clean sell trigger at 1684, and this roughly matches the technical theme of the NYA chart shown previously.  We can also see that SPX has formed enough waves that we could conceivably view this as a complete five-wave rally.

So far, the breakout over the May high hasn't been significant enough to signal any kind of all-clear for bulls.  Meanwhile, the decline to 1684 and subsequent bounce could simply be viewed as a back-test of the May high.  In other words, there's not much info being conveyed by the charts here, and the market needs to declare its intentions with a breakdown or breakout before we can feel more confident in the next sustainable directional move.

Short Update

Unfortunately, my personal life has necessitated a short update today, but there's probably not much required anyway.  We've reached a potential inflection point.  SPX has formed a five-wave decline, which suggests either a running flat (a variation on Tuesday's alternate count), or the start of a new leg down.  This provides us with a fairly reasonable bearish sell trigger at 1684, with the caveat that any decline below 1684 needs to show increasing momentum, since fourth waves are one place where triggers like that can fail spectacularly.  In any case, the pattern has the potential to turn into a head and shoulders, and that has to be respected as a possible topping pattern.

Without another break lower, though, and it's simply a back-test of the May high. 

In conclusion, the possibility does exist for a turn underway, but this could simply be a back-test of the May high -- so the next break should help point the way for the bigger picture.  Trade safe.

Dow Overbought and Approaching Long-term Resistance

Today we're going to look at the long-term in a bit more depth.  As most readers know by now, I believe we're in the fifth wave of this structure, meaning this is the final rally wave before a significant top.  The wave is still pointed upwards for the time being -- so we don't want to get too far ahead of the market -- but at the same time, I think risk to long positions is increasing.

The rally still seems like it's being driven by bots and algos, and according to Nanex Research, yesterday the SPDR S&P ETF Trust (SPY) recorded the lowest non-holiday volume since February 16, 2007.  One can read a lot of things into that fact, but I found it of interest.

The long-term monthly chart of the Dow Jones Industrial Average (INDU) also has some interesting features.  The two most noteworthy are the approach of long-term resistance (at the upper blue line), and the monthly MACD, which is now at the second highest reading in history.  The record reading occurred just prior to the top at the beginning of this century (sheesh, we're getting old!).
   

The long-term S&P 500 (SPX) chart is almost entirely unchanged since February, and appears to be putting the finishing touches on the structure.

The Russell 2000 (RUT -- aka: the least appealing acronym in the industry.  Who wants to own a bunch of "RUT"?) also appears to be wrapping up its five-wave structure.

Apple, Inc. Reaches Price Targets; while SPX Bears Ask: "Are We There Yet?"

Since my last update, the S&P 500 (SPX) reached the next target zone of 1704-1708, the Philadelphia Bank Index (BKX) reached its target of 67-71 and Apple reached its July 8 target and July 10 target of 462-468.  Today, we'll look at what may be next for all three.

Let's discuss SPX first:  While further upside is still anticipated, if my preferred wave count is correct then this rally is the fifth wave of a fifth wave -- meaning a significant correction (or worse) should follow.  Market internals have been weakening as SPX makes new all-time-highs, which does fit the expectations of a fifth wave.  The X-factor as always remains the Fed's printing press, but even the Mighty Beard of Ben Bernanke can't remain forever immune to the natural cycles of the market, and I presently see no compelling reasons to doubt the preferred wave count.

All of my recent near-term upside targets have been reached; but in the bigger picture, the next target zone is 1720-1735 SPX.  There's still a shot at my February 7 target of 1750 +/-, but we'll have to take it day-by-day heading forward, since if this is indeed the fifth and final wave of the rally, then the odds for downside risk are increasing even as price heads upwards.  Personally, I've never been a big fan of fifth waves.  They're designed to catch everyone off-guard -- obviously that's how they need to work, since if everyone knew the market was going to reverse its established trend in the relatively near future, then no one would take the other side of the trade.  As a result, fifth waves tend to fall either a bit short of the final target (while everyone is still looking up) -- or they run right through the target and get everyone thinking all's well and the market will trend forever.  We'll see how close I can get to pinning this one down, but "expect the unexpected," as the saying goes.

SPX has followed the recent projections well, and presently appears pointed toward the next target zone.

There's an alternate near-term possibility, which would add a nice twist to the path SPX takes to reach the target.  The alternate count is for a pattern called an expanded flat, which would kick out the prior swing low before rallying back up to the target zone.  Expanded flats are great for creating confusion and maximum pain among market participants, since the break of the prior support zone get everyone looking the wrong way.  Presently, I'm discounting this alternate count at 35% odds, but the recent rally wave gives off an aura of "b-wave slop," which is why I'm discussing the potential.  I've noted a few levels to watch on the chart below.

The Philadelphia Bank Index (BKX) has now reached both upside target zones.  I haven't drawn a near-term chart for BKX, but it seems to suggest the same potentials as SPX.