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[MEMBERS UPDATE] $AAPL HISTORICAL ANALYSIS WHEN IT HITS EXTREME 30-RSI LEVEL


Today's action in Apple is both positive and negative but mostly very very negative in the near to intermediate term. Make no mistake AAPL is still in it's own bull market recovery. So we are simply addressing the near term action right now.

The positive part to today's action is that Apple held its key psychological support at $110 a share. That's a win. Today's action is also positive in that Apple is outperforming the market. We also have AAPL coming into this key support trend line around just slightly under the 50 day moving average.


But the positives end right there.

What makes today's session for the near term negative is that while Apple has rebounded a mere $0.10, the daily RSI has jumped a bit. We're now back up to near a 37-RSI today on the daily. This uptick on RSI while AAPL rests in this area tends to indicate that AAPL is setting up for further downside. I would much rather see Apple down a few pennies and have the RSI push down to 34 than for Apple to be up a mere $0.10 and see RSI push up a smidge higher. That's not a good trade-off at all. We would rather like to just see the stock come in, bottom and then rally.

You either want to see Apple rally hard or fall. The in-between stuff is far more negative for the stock than any down day. Yesterday's action was far more productive than is today's. Also, you have to remember that time is an element in the equation. And a $2.00 down day helps Apple get closer to a bottom. Today's action doesn't. Suppose Apple falls 7-days and $13 down to a 25-RSI fore example. That is a significantly better outcome than if Apple had fallen $5.00 and then traded sideways for 7-sessions. Even though Apple gave up $8.00 in the former situation, it also hit a sub-30-RSI and did so in a mere 7-days. Meaning we only gave up 7-days of time for Apple to get down to a sub-30 RSI which just means that the next 15-20 sessions will lead to the stock rallying all the way back to the highs.

Take a look at the table below as a refresher. You can see that in situations where Apple isn't falling off a cliff down to a 20-RSI -- which is the rare exception in the past decade (despite happening three times in 2015-2016 era) -- the stock bottoms out near a 30-RSI and then rallies 10%+.


I actually believe we've entered a new era and trading environment. If you look at this table above, you can see that the table is color-coded by era. Back in 2006, for example, Apple hit a 30-RSI twice. Once in March and once in July. Both preceded a huge 20+ and 40% rally over a very short period of time. Clearly we're not in that environment anymore. In fact, that environment shifted in 2008 where Apple hit a 20-RSI twice. Once in January and again in the financial crisis. The rebounds were similar and it took a similar amount of time for Apple to bottom out before rallying.

Then we entered a goldilocks RSI period where every time Apple touched anywhere remotely close to a 30-RSI, it immediately lead to a massive rally. That was during the bull market. You can see that during bull markets, a 30-RSI is a gargantuan buying opportunity. In August 2010, July 2011 and May 2012, Apple touched a 30-RSI for a single day and then went on a 23.5%, 30.3% and 11.4% rally in 23, 26 and 9 trading days respectively. Think about that. For a few years Apple only touched a 30-RSI three times and all three of those instances lead to massive gains over the next 5-weeks.


We then entered the 2012 crash era where Apple hit a 30-RSI a number of times. In most of those cases, Apple bottomed within a small handful of days after hitting a 30-RSI and then proceeded to rally between 12% and 33% immediately over the next 2-5 weeks. In November 2012, Apple bottomed out at a 20-RSI after spending 11-sessions below that 30-RSI mark. It then rebounded 17.57% from there. If you had bought Apple at a 30-RSI back then, you would have made a net gain of 3.37% even though the stock fell 12% before rallying. Then in January 2013, Apple hit a 30-RSI, spent a mere 2-days trading at or around a 30-RSI and then rallied 12.13% over 11-days. It did that gain in both March and April 2013 where it rebounded 12.14% and 21.03% over a three week period each time. In both cases, Apple bottomed within 1-2 days of hitting 30. Then we got our final bottom in June 2013 (just like we did this year same date) and Apple proceeded to go on a 33% rally over 33-days.

Finally, in the 2016 era, we saw violent moves and massive periods of the stock trading at oversold conditions. Before that, in January 2014, Apple hit a 30-RSI for 1-day (after earnings) and then rallied 11.68% over 12-sessions (vertical run). It did so again in July 2015 (ahead of earnings) and rallied 11.53% over 8-sessions going into the results. But the fun stops there.

After Apple reported its Q3 2015 earnings report, everything turned very negative. In August 2015, Apple tore right through a 30-RSI and traded below it for 14-days. We spent three weeks going down after hitting a 30-RSI. In all fairness though, when Apple did hit 30, it did rebound 7.5% from absolutely low-to-high between two-sessions during the sell-off. The volatility was very high. I didn't count it as a rebound because it all happened either intraday or I believe it was a hammer followed by a gap-up peak and reversal. So it really was a 7.5% rebound happening over a small number of hours. It hardly counts as a rally. So if you discounted that little rebound, Apple did fall for an additional 14-sessions after hitting a 30-RSI and lost $24.37 or 21% over that 14-day period. But then it rallied 27.05% fully recovering every penny in the process. And it did so over the ensuing 15-day period. Had you bought the stock at a 30-RSI back then, it would have fully recovered back to that point. The problem is that it only recovered back to that point and then topped. IT would be as if Apple hitting a 30-RSI down at $109 a share, falling to $95 and then rebounding back up to $110 before topping out again. So that whole scenario was a disaster to the 30-RSI trend which has been an otherwise predictive indicator for a bottom.

Yet, the problem is that this happened again two more times in 2016. Apple hit a 30-RSI in mid-December 2015 and didn't bottom out until a full 36-sessions later in February 2016. That's 7-weeks of the stock continuing to fall after hitting a 30-RSI. It only an additional 13.88% in the process and the ensuing move after that lead to a 22.55% rally. The positive here is that Apple did end up moving up 7.84% above where it was when it hit a 30-RSI. So for example, in this scenario, Apple hit a 30-RSI at $106.60, fell to a low of $91.80 and then rallied up to $114.95 (on a dividend adjusted basis) -- the point at which Apple hit a 30-RSI was lower and the point at which Apple peaked was lower. The point is that the stock's rally here went a full 7.84% above where it was when it hit a 30-RSI. So if you had purchased options that were 1-year out or even 6-motnhs out, you probably would have come out way ahead here even though the stock fell 13.88% over a 7-week period after hitting a 30-RSI. It would have been a very painful period to sit through, but it would have lead to gains. The whole process was 72-sessions. That's why it is absolutely essential to remain in 6-month out options if options at all. That way you could weather something like this. One thing we've learned that has worked in EVERY SINGLE market environment for Apple without a solitary exception is this. The lower Apple goes on the RSI, the stronger the rebound. Apple has hit a 20-RSI on 7-different occasions.

And in those 7-occasions, every time AAPL hit a 20 RSI the

following rallys ensured:

+36.18%

+36.94%

+17.57%

+33%

+27.05%

+22.55%

+32.93%

In some cases it took weeks for the rally to begin and then it took a while for it to complete. But that's the record after Apple hit a 20-RSI.

So let's consider our situation for a moment. Suppose Apple does continue to sell-off and gets down to like $100 a share and hits a 20-RSI. I think at the moment it is unlikely, but suppose that happens. Past history has shown us that you can expect at least a 20% rally from there. If Apple fell to $100 a share, history tells us that Apple will then rebound up to $120+. Every single time in 2016 when Apple hit a 20-RSI, it rallied big-time.

The rally gains in 2016 alone when AAPL hit a 20 RSI were the following:

+27.0%

+22.55%

+32.93%

And those began in August 2015, February 2016 and May 2016. So you see, a 20-RSI shouldn't be worrisome if you're holding the right expiration. And that's why we want to see things move quickly rather than slow. The time cycle is very important. If Apple is going to hit a 20-RSI during this down cycle, we want to see that happen immediately. Sooner rather than later.

But here's why I don't think we're even going to get that far. Why I think we may very well be in a new environment. In June 2016, Apple had at the opportunity to fall back into the abyss. And instead the stock bottomed the very day it hit a 30-RSI. It then rebounded 11% over the next 17-days. That's before it pulled-back a few percentage points ahead of its earnings and then rallied an additional $20 over the next three months between Q3 and Q4 earnings.

So we already have one of these 30-RSI bottoms in the books. What's more, the fact Apple recovered 75% of its bear market loses, it's clear we're no longer in that bear market environment. In fact, the beta is still very low relative to what we saw in 2015-2016. Everything that we've seen the past 4-5 months suggests that the bear market ended in late June 2016 -- that was a little more than 4-months ago.

Thus, I think we're now back in that environment where if Apple gets down to a 30-RSI, it probably bottoms. It probably rallies 10% and it probably does so over a 10-20 session period of time. I know it's very easy to look back to 2015-2016 and think, "Oh no, Apple is going to a 20-RSI."

But just remember that until this recent bear market, Apple had only EVER hit a 20-RSI a mere 4-times in a decade. Just a total of four cases ever. Twice in 2008, once in 2012 and once at the bottom in 2013. That's it. That was the total number of times Apple hit a 20-RSI between 2005 and 2015. It then did so three times during this past 12-month long bear market. So I'm not so sure that Apple is just going to run right back down to a 20-RSI. And it's important to remember that during the post-2013 bull market, Apple had periods where it traded down or sideways for a while. Hell Apple traded sideways between October 2013 and April 2014. For nearly 6-months Apple oscillated between what would be something like $110 and $120 a share. Then it entered the next phase of the bull market. So I wouldn't be quick to conclude here that Apple is going to a 20-RSI or that the bull market is dead or something here.

So far this volatility is still very low compared to what we saw in 2015-2016. It's not even close. We were seeing Apple rebound intraday by 7.5% and then fall 5% for the hell of it in 2-days. So it's not the same character. That being said, we want to see the continue to slide this week. Then we want to see capitulation between Thursday and Friday. That could put Apple at a 30-RSI between Friday and Monday. And that right there could set Apple up for a huge rally going into Thanksgiving and Black Friday. That's the cycle that we want to see. Notice that the daily RSI closed at 36.96 yesterday and it is up nearly 2-points on a mere $0.10 rebound. That's nearly 1-point per 15-cents. That's not worth it. We need to see the stock falter here.

Elections Outcome & Volatility

So I want to preface what I'm going to say in this post by making clearing that we're not making any political statement one way or the other. Just merely stating as a matter of fact how the election is likely to play out as it has to do with our current holdings. First, it is clear the market doesn't want Trump to win. Historically speaking, the market generally favors republican presidents as they are typically better for business (deregulation and lower taxes). But with Trump, the market simply just views him as too inexperienced and too much of an unknown in spite of the fact that he's running on the republican ticket.

Well it's obvious that if Trump wins it's going to cause some degree of volatility in the markets. But that's a massive "if." As it stands right now, Trump would need to win EVERY SINGLE battleground state AND convince at least one historically blue state to go red. That will be a very difficult feat to accomplish. Right now, the odds are stacked very heavily against Trump winning even with the FBI's recent decision to re-open its investigation into Hillary's use of her private e-mail server. Even with that, the odds are stacked against. While national polling might have shown that Trump is closing the gap, that is only on a popular-vote scale. That has nothing to do with electoral votes. Take a look at the following 2016 Presidential Election Map. You can see here that all Clinton needs to do is win the states that are already very heavily in favor of her Presidency and she will have already won. She doesn't need to win a single battleground state at this moment. This is based on state-by-state polling results:


We are not taking sides here. Just trying to lay out facts that can help us make a prediction on how things will end up playing out and how that may end up impacting the market. Now I don't think many people would argue that the market at least believes that Trump would have a negative impact on financial markets. Whether the market is right or wrong, it's clear the market as a whole is nervous about the possibility of him winning. Again, not drawing an option about whether the market is right or wrong here. Just that the market doesn't want him to win. And I believe that is the result of the potential uncertainty that is introduced with his unconventional demeanor for someone who is President.

That's the market's point of view at least.

Now here is why I don't think this action we're seeing now has anything to do with the election and why I'm fairly confident the market already believes that Hillary has won the election or has a very high chance of winning. So much so that it's not a concern at the moment.

The media has been painting a story that suggests that the race is a lot closer than it really is. Especially in light of the FBI announcing that it was re-opening its investigation into Hillary's use of her private e-mail server as secretary of state. But let's take a deeper look at the reality here. While the polls might show that there is a tight race, the popular vote doesn't have any bearing on who becomes President. That is determined by electoral votes. As I'm sure most of you are aware, a candidate needs 270 electoral votes to win.

Right off the bat, political analysts all agree that there are states which are squarely blue, states that are squarely red, states that are heavily leaning blue and red and states which are too close to forecast or make a prediction (battleground states). Right now, everyone agrees Hillary already has 258 votes to Trump's 157. Then there is Nebraska which will likely go to Trump (another 5) and there is Maine which will likely go to Clinton (another 4). So if we assume those two states do go in each of the candidate's favor -- it's pretty much clear that they will at this point as the margins are pretty wide there -- that gives Clinton 262 and Trump 162.

Now we're talking states which are squarely already in Clinton and Trump's corner. Remember, that Maine and Nebraska are almost clear-cut states. They just aren't overwhelmingly convincing enough to call them obvious blue/red states. But let's get real. Maine has casted their ballot for the democratic candidate in every election since 1992. Clinton leads by 7-poitns in Maine. So it's not like it's some tough to call margin like 2% or something. We're talking 7-points in a state that hasn't gone for the republicans in 20-years. In 2012, the state voted for Obama in a 56.3% to 41.0% margin -- more than 15%. Ok. So let's just assume those two states -- Nebraska for Trump and Maine for Hillary -- are not battleground states.

We're now sitting at 262 to 162. That means Clinton just needs a mere 8-electoral votes and she wins right? Now let's set aside the discussion into New Hampshire which is another that I don't consider to be a battleground state (read here), let's take a look at Wisconsin which has 10 electoral votes. Clinton wins Wisconsin under this scenario, she doesn't need to win a solitary battleground state. She already won with Blue + Wisconsin + Maine. She could lose every battleground state and win -- that's Nevada, Utah, Arizona, Florida, Georgia, North Carolina, Ohio and Iowa. Again, those states are close. They could very well go for Clinton. We could easily see an election that is won by a landslide. But suppose they go for Trump. Even if that were the case, consider Wisconsin where Trump didn't even win the primary.

Somehow Wisconsin is considered a battleground state despite the fact that Clinton maintains a 5.7 point lead in the state after the FBI news last Friday. The state has gone for the Democrats by a wide margins for the last four Presidential elections. She is forecasted to win there by an 80% probability. This doesn't consider the fact that Clinton already has solid leads in many of the battleground states. Trump has to win every single one of those states. He loses one of those states, and the election is lost.

No one is saying it's impossible for Trump to win, but he would need to win all Battleground states and then convince a squarely blue state to vote for him. I just don't see that happening when members of his own party are voting independent or have jumped ship to the Clinton camp. This is who I believe it is going to shape up at a bare minimum with Clinton probably winning a few or most of the battleground states anyways.


Hillary is probably 5x more like to win in a landslide than Trump is to win at all. The only reason this election isn't already called a likely landslide victory is because of what is at stake. But any other election and the media would already be calling it. Anyways, the point here is that I wouldn't read too much into the market action right now and I certainly wouldn't view the recent volatility as having anything to do with the election at all. I do think that last Friday's news did jolt the market, but once we got more color over the weekend, that sort of shifted to the back burner. If there is any selling that has to do with the election that selling is either (1) uninformed or (2) hedging just in case of that 5% scenario coming to fruition. Remember, we still have a few days util the election and who knows what could happen. This is treated like any other issue with even a small amount of uncertainty attached to it (like earnings). The market will be a little nervous until the event has passed and then we get a buy or sell the news. But if the market actually believed that Trump was going to win, you would see stocks heavily declining here. This is so far very minor.


Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”