AAPL’s nearly 65 point drop last night is not being favored with much of a dead cat bounce this morning. Part of the great unwind last night was a “long AAPL/short ES” paired trade gone sour. The momentum-chasing hedge funds couldn’t resist the concept, especially after the SPX decline going into the year-end. Unfortunately, AAPL’s momentum fizzled while the SPX went higher. The trade became a lose/lose proposition with no merit, especially after AAPL’s lackluster earnings report last night.
The big picture shows that AAPL was already toying with its Head & Shoulders neckline for the past two weeks. Having crossed beneath it once, it had virtually no support while crossing it a second time. This decline now has legs in AAPL and, by default, in the NDX/QQQ.
NDX gapped down in an island reversal this morning. This breakaway gap may remain unfilled as NDX staggers downward. There are other gaps, such as the January 2 breakaway gap that may also remain unfilled, since supports in the lower half of the Cycle band are often weaker than in the upper half.
At the moment, there is support at the mid-Cycle line at 2723.22 and resistance at 2750.00. It is possible that NDX may remain stuck between support and resistance until the next breakaway gap down. The reason? Margin calls are at the top of mind for virtually every hedge fund that owns AAPL. Nuff said.
SPX is in a throw-over of its 5b Bearish Wedge formation, but hasn’t reached the (red) trendline of its Orthodox Broadening Top. The strongest Fib relationship, in my opinion is where the rally from November 16 to December 18 is equal to the rally from December 31 to today at 1502.75.
However, the trendline appears closer to 1506.66, where the final rally is equal to 78.6% of the rally ending on September 14.
Time-wise, it appears that the turn may come this afternoon, so be prepared.
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25 Jan 13, 19:35
I'm just curious, have you ever predicted a rally?
Cause you sure have missed a lot of them.