10/28 Wednesday

Primary Bullish Trend

(July 2009  – Present, Daily Chart)

First things first.  I do not have any positions on $AAPL currently.  My 1 month of bearish trade was done last week and currently I am just sitting on cash to see where $AAPL might be heading.

As you can see in this chart that we have been in this long term bullish trend for sometime now.  $AAPL is a extremely bullish stock and this bearish move we’ve had this month was a corrective move when we look at it in the big picture.

We do not have any solid confirmation yet that bearish reversal has been in place as a whole but we do have some early signals that are forming for such argument (which I will be dealing with on this post later).  But for now, we can not forget that $AAPL is still in bullish trend in the big picture.

Intermediate Bearish Trend

Last week I’ve written an article titled “Momentum Can Not Be Buildt In One Day” and it’s true. We can not confirm yet that this intermediate bearish trend has been broken.  Even with a little bounce from 200SMA and this long lower wick formed last Friday, we still don’t have clear signal to go bullish yet (unless you are a day trader).

We do not have a hammer today (Hammer is a completely shaved top with a small body and long lower wick). What we had last Friday was a spinning top with a long lower wick which that suggests some bullishness to it.  But even if we had a hammer, still that does not justify for the argument of reversal.  I just need more confirmation to conclude that we got a bullish reversal on here.  We could have a reversal here but we do NOT know that yet as of today because we need more confirmations.

I do put more weight on coming bullishness for short-term because of the volume we had last Friday.  We haven’t had that kind of volume since last April so that’s definitely a good sign for bulls.

“Due For A Bounce”?

Many traders are now saying, “$AAPL is due for a bounce”.

Do you realize that means absolutely nothing?  Bounce to what level?  5 points? 10 points? or 50 points?    On 9/27, 10/16, 10/22, we had a bounce but $AAPL continue to tank so when traders say we are due for a bounce, they are not saying anything. Anyone can say that without proper explanation of exactly what kind of bounce they are talking about.

You remember back in 10/9, we’ve formed a Hammer (not completely but close enough) right on 100 SMA and they ALL said we are due for a bounce. And what happened after that?  $AAPL tanked again after few days of consolidation.  So when they say we are due for a bounce because of 200 SMA? They are just guessing just like they did back in 10/9 when we had a hammer like candle right on 100SMA.

And yes we could bounce here.  But the keyword is “COULD”.  Nothing is DUE in the market.  The market does not owe us anything to use language like “Due for a bounce”.   I will be careful of that kind of language because when you say that the $AAPL is DUE for a bounce, you are saying that it HAS to happen.  And when you put your mindset in that way, you are starting trade off of your emotions or feelings instead trading off of confirmations from the data.

I’d say, “We COULD bounce here”.

200SMA / Fibonacci Acting as Support

(Fib Retracement measured from $700 level to $530)

200SMA and Fib. 61.8% retracement level is acting as support.  If it’s going to bounce, it has to be at this level.  If this level is broken, it’s very much possible that we may get down to $570 and $530 level.   So I actually am expecting some kind of short-term pull back bounce. Obviously we are going to need more confirmation for a bullish reversal but yes we could bounce here to 100SMA level to test that again as resistance.

As I have mentioned before, bulls got to battle against this bearish momentum right now.  10EMA and 100SMA was just crossed recently which suggests that bearish momentum shifted just little bit deeper.

Indicators at Oversold Status..(?)

(Daily Chart with Parabolics, Stoch, RSI, MACD)

Many are arguing that we are due for a bounce because the indicators are at oversold status.  That’s completely preposterous when someone suggests that.  Remember I said the keyword is “Could” and not “Due”. We could bounce yes but we are definitely not due for a bounce.

I want you to pay attention to  the chart and the indicators last Dec., Jan., Feb. where I drew a blue rectangle box.

You see how Stoch and RSI was at OVERBOUGHT status?  Don’t you think some traders were saying that we are due for some bearishness because the indicators were overbought?  Yea I am pretty sure someone was yelling that indicators were overbought at the time but what happened?  It continued bullish over 4 months with OVERBOUGHT status on their belt!  The indicators were kept oscillating in the zone of overbought territories.  So why would you suggest that we are due for bounce because we are at oversold?

Yes we might bounce for a short-term but we can not suggest that we are due for a complete reversal because of the indicators.  We definitely COULD but we are not DUE for anything.  These indicators could continue to oscillate in the oversold territories and could go for another 4 months. It’s absolutely possible that could happen.

Check my Special Analysis for deeper studies on the indicators.

Bullish Argument

1. $AAPL is in bullish trend as a whole
2. 200SMA, Fib. Retracement level possibly working as support
3. Last Friday we closed with a spinning top (not a hammer – big difference) with a long lower wick which suggests bullish sentiment in that candle
4. Very nice volume spike last Friday (We haven’t seen this kind of volume since last April)

Bearish Argument

1. Dow Theory = The trend is in assumed to be in effect until it gives definite signal that it has been reversed.  We still do NOT have definite signals that this month long bearish trend has been reversed.
2. All moving averages crossed except 200SMA
3. Weekly Bearish Divergences (chart below)
4. Monthly Evening Star reversal formed with a Tower Reversal using Tombstone Doji at the top (chart below)

(Weekly Bearish Divergences on Stoch, RSI, MACD)

Check on your daily chart on $AAPL. We had Bearish Divergences on all three indicators back where it was trading for $700 (late September). After confirmation, $AAPL lost 100 points.

(Monthly Chart)

We got three bearish reversal signals on this chart.

1. Tombstone Doji at the top – This candle leaves long upper wick thus giving us more bearish sentiment in this candle than a Doji.  It kind works like a Shooting Star candle but not as strong but when it happens at the top of the bullish rally often can be interpret as reversal signal.
2. Evening Star Reversal – You put last three candles together, you get Evening Star reversal signal.  This is a quiet strong reversal signal when it happens after a bullish rally.  This time it suggests more bearishness because it formed with a Tombstone Doji instead of a regular Doji.  Check weekly chart on $AAPL, you will see a evening star reversal with a doji on top that started this 100 points drop on $AAPL.
3. Tower Reversal – You can see in the diagram I added on the left corner side of $DJIA. That’s what we call a bullish tower reversal (long bearish candle followed by a doji or spinning tops and then changed direction with long bullish candle).  In this case, we have a long bullish candle followed by a tombstone doji then changing direction with a long bearish candle.

Putting It All Together

I definitely see some slight hope for the bulls but I don’t see any strong bullish reversal signals yet.    I want to see at least  10EMA and 100SMA taken out before even thinking about getting into a bullish trade (for Swing/Position Traders like myself).

It just there are still so much bearish reversal signals at the top (Weekly and Monthly).   200SMA bounce just doesn’t do it for me.  That’s not enough bullish signal for me to start betting on bullish trend.  $AAPL has not given me definite signals that the bearish trend has been broken.  It hasn’t.  Last Friday action isn’t enough for me.

Click here to see how many reversal signals NEEDED to crack this $700 trading stock to $600.

This is what I think its going to happen.

I do think we are going to have a bullish bounce to possibly $620 – $635 but if we are going to see some solid bullish reversal signals, you want to see some good healthy bounces of higher highs and higher lows. And you definitely want to see some steady trading to the upper side with solid volumes comein in.  If $AAPL has taken down $635 level (Fib. 38.2% retracement level) and closing above 10EMA and 100SMA, I would consider going bullish.

For bearish trade, I wouldn’t get in right now.  I want to see some bounces here to $620-$630 area, with that you would see of those indicators (RSI, STOCH, MACD) resting a little bit to the upside before it continue to travel downside. Once it starts to test that 100SMA level and pulls away with solid break away pattern of some sort, I would get in bearish. Also possibly we might be forming a short-term consolidation maybe a tight channel or rectangle pattern before it breaks. But if short-term consolidation forms, break could be on either side.

Bonus Analysis

(BBands, DMI, ADX)

Bollinger Bands continue to expand which is good sign for bears. What you want to see if you are bulls is that you want to see the Bands flattening out. That’s the first clue that the trend is slowing down and possibly reversing.  But right now you can see that the bottom band is continue to expand.

Also the middle red line (20 SMA) has been acting as pretty good resistance. Last two times, it tried to push through that middle line but got denied when it got near to it (see red arrow).  So I can see that we might bounce again up to that red middle line and see if that middle line act as resistance again.  If it holds true and the stock starts to fall, I would get in bearish.  Conversely, if it starts to push through that resistance and trade above that middle line, I would possibly think about getting it bullish (of course, I wouldn’t get in to a trade with just Bollinger-Bands signals).

DMI still giving the favor to the bears. You noticed how the red line pointing up.

ADX (One of my favorite indicator that measures the momentum and strength of a trend) is still supporting this bearish trend. ADX is currently traveling in 36 level but it can go up to 50-70 level (March 2012, ADX reached 70 level on $AAPL) so we still got lot of rooms for ADX to continue to travel to the upside suggesting bearish momentum.