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[Members Update] SPY & AAPL Update

First off, we want to point out where the SPY is right now. Remember there are 3 major time frames when we're discussing the technicals of any stock/index:

1) Near Term Time-Frame: this is short term direction from hourly to days and sometimes a few weeks

2) Intermediate Term Time-Frame: weeks to a few months of directional

3) Primary Term Time-Frame: Months to year(s) direction.

Right now the SPY (S&P500 etf) is trading bearish on the near to intermediate term bearish. But very much Bullish in the Primary term. We expect any moment this week or next at the earliest that the market will see a significant bounce. The strength and momentum of that rally will give us a strong indication of what we can expect next in the intermediate term. Here is where the SPY stands on the primary term trend:

Notice that this trend is till very much in effect. So this pullback in the larger picture of things is nothing to be worried about. We can fall much further from here and the market would still be categorically a bull market. In order to dismantle this bull market it would require a either a global or economic black swan catostrophe of epic proportion. We are not in the Lehman brothers / Financial crisis era or 2007, we are not in the .com bubble of any kinds. We're not saying the market is impervious by any stretch of the imagination, just simply keep perspective with where things are in the larger picture. Now near to intermediate term there are certainly bearish tones. But we expect this market to bounce any moment. Take a look at the daily chart here:

Notice that the SPY is sitting right at the base of a downwards sloping channel. This sell off is actually quite orderly, not vigorously as steep as we've seen in all the other selloffs we've seen since mid 2015. Although we've made a lower low on the NEAR TERM trend...we are still very much in the territory where a higher low on the intermediate to primary term trends. Notice the downside target on the chart above. We're not saying that we'll even get there but it's still possible. We can only trade what's in front of us so we'll be watching this level. It's all together possible that we will be initiating a long position on the SPY sometime before the market close or this week.

Now here is where we are with AAPL:

With today's sell-off, Apple is right back down to a 30-RSI on the hourly chart. This is what I mean about the stock needing a significant rebound to make more than incremental new lows. Now the stock is at the point where it is merely back down to the lows we saw a few days ago but it is also right back down to oversold levels on the hourly. Typically we see this exact type of trading action near a bottom. And I do think Apple is approaching some signifiant lows soon. The daily chart has fallen to a 35.5 level again which is exactly where we were on Tuesday. So we're not far from hitting that 30-mark and it appears that the 30-mark does sit right around that $108-$109 level as we first outlined it. There's a big gap down there that Apple needs to fill so I do think the low-point for the stock sits somewhere around those levels. Then even if we saw the lowest rebound we've ever seen off of a 30-RSI, that would put Apple at $116.10 at its highs of the rebound. That would be a 7.5% rebound off of the $108 level. If we see the typical rebound we've seen in every other case, then you're talking about a rebound up to $120 a share from there.

Given that Apple did deliver on its earnings across the board and in every way imaginable, it's very possible that this could all just be a pull-back ahead of the next leg higher. Remember, Apple was overbought on the daily chart (above a 70-RSI) and it hadn't had a pull-back in a long while. Not a serious one. So this pull-back could just be a set-up for the next leg higher. The point is I wouldn't be surprised if Apple started rallying and went right back into bull mode. It happens. This is a minor correction in the grand scheme of things. On the other hand, it could just be the first leg down in a larger correction. Even if that is the case, the stock should rebound back up to around $116. That puts us a mere $2.00 below the highs and makes for a great exit point. I mean we can't expect to be able to sell at the very top. But if we can sell within $2.00 of a signifiant, that would be a very positive outcome overall. Even an exit at $115 would be fine.

Now I have a theory as to what is happening here. The market is merely setting up to rally hard next week on a Clinton election. Think about the timing here. We're nearing peak oversold levels just as we head into the election. If you think about the timing here, Monday or Tuesday makes sense for a bottom. Meaning if we had no election going on right now, the most likely date for a bottom would probably be Monday followed by Tuesday. Why Monday? Because you tend to see capitulation on Mondays. Stocks will fall hard on Monday morning, reverse course and close green. That's sort of the trend. And then what do we have? We have the market rallying all day on Tuesday and then rallying even more on Wednesday. That's what you would normally see.

And if that happens form a timing point of view, people are going to attribute the rally to the Clinton election. I think that is what is setting up here. Either that, or the market is ready to crash on a Trump election. We could definitely go lower. WE haven't hit extremes just yet. The $VIX is now overbought on the daily chart sitting at a 70.6-RSI. But the $VIX can go up to 80 and has sometimes. The $NYMO is down to -75 on a closing basis. Extremes are at -100 or lower. The SPY RSI is down to the 32-level. But we can see that get down to 25 or lower. It's typically the case that the SPY bottoms at 30. But it could go to 20 no problem. It has before. Usually when that happens, we end up having a massive multi-week rally that follows. Sometimes multi-month rally.

With Apple down 2.43% this week, the stock is likely going to close down for the third week in a row. It's important to remember that in bull markets, the stock never just trades vertically week in and week out. In fact, if you go back and look at the 2013-2015 bull run Apple had where the stock rallied from $390 a share up to nearly $930 a share (split adjusted), the stock had very long periods of consolidation. Much longer than anything that is going on now. In fact, after the first segment of the rally ended, Apple consolidated for 20-weeks before moving higher. That's nearly half a year of consolidation. It traded inside of a range for that long. It would rally up to $530 and then fall back to $500 and then rally again to $540 and fall again to $500 and it did this for nearly 6-months. From October 2013 until April 2014, the stock remained range-bound. And just before that back in the August-SEptember period, Apple consolidated for 9-weeks before pushing to new highs. IT did so again in the summer of 2014 where it consisted for 9-weeks. So far Apple has merely just pulled back for three weeks. It merely has reversed the three weeks of gains to put up three weeks ago. It went up for three weeks and then came back down over three weeks. That is what is shown on the weekly chart. The point here is that it's important to remember that could potentially consolidate for months or remain range-bound for months and still be in a bull market. We could see the stock rally to $120 and fall to $110 another five times and it could still be in a bull market ready to break through $120 at any moment. Take a look at the weekly chart below, notice the consolidation periods that AAPL tends to go through. The purple line is January earnings so that gives you a sense of how much travel time we can expect to cultivate in the green box:

So a few things are happening here with Apple pushing right under $110. First, Apple's hourly RSI is now back under the 30-level. We're sitting at a 26.9-RSI on the hourly compared to a 20-RSI back when Apple was at around $110.50 a few days ago. So you can see that we've only made very small incremental new lows and yet we're back into oversold territory on the hourly. Hence why we usually see a larger rebound. I think that prior rebound went for just under $2.00. Typically when you get a 20-RSI on the hourly, you can expect a $3.00+ rebound or really around a 3% rebound. So we should have seen Apple rally to like $113.50 or something like that. Secondly, Apple's daily RSI has now fallen to 34.17 as Apple trades at $109.96. Apple has fallen $1.05 today and the RSI has dropped 3.33 points. At that pace, Apple will hit a 30-RSI on the daily chart when it falls to the $108.65 level. That's exactly where we would expect it to hit those levels as we mentioned.

Now here's the thing. We've seen Apple get close to a 30-RSI and bottom just above it on a number of occasions. If you look at the 30-RSI table we posted here yesterday, you can see that in a number of events, Apple bottoms just above a 30-RSI. And that doesn't count the number of times we've seen Apple bottom around the 35-level. Because that has happened a large number of times. Go back to this past September for instance. Apple fell to a 37.4-RSI -- which is on the low end but not quite 35 -- and it bottomed right then and there. The point is that Apple is at a place where it can bottom at any time. And when you're talking about psychological support at $110 and the fact that $110 was the line that officially ended the bear market, it's a major area of support. We could very easily see buyers come in and bottom the stock here. It's very possible.

So don't count that out at all. If I were in cash and looking to buy the stock, I would be taking a position here at the $110 area and then another larger hedged position at a 30-RSI. Remember, when Apple falls to a 30-RSI, the one thing that is almost certain is that the stock will see some big swings. It's either going to rally hard or fall hard. It will either go to a 20-RSI and fall another 8% or it will rally 12.5-15%. That's the typical 30-RSI set-up. Lately we've seen a few rallies go on the smaller end of the percentage curve (the 7.5% rally we saw back in the 2015-2016 bear market). Even the post-brexit rally was only 11% which is on the lower end of the spectrum relative to pre-bear market rallies. The smallest of which was like 12.5%. Obviously, no one is going to scoff if Apple rallies 11% off of the $108 level. That would put Apple at $120 a share. And you have to consider that if Apple climbs all the way back up to $120 after having tested the $110 level here after earnings, the probability of a breakout is high. So that's why the post-30-RSI rebound we get here in the next few days or so is going to force us to make some very tough calls.

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.”

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