Market Overview:
Near Term - Bullish
Intermediate Term - In Range
Primary Term - Bullish
After the initial shock of the Trump election wore off a bit, we started to see the market come back significantly from its lows. It reached a low of -800 Dow points. Now I think the reason you're seeing the markets rallying back and the reason why I think this will end up being not as big of a deal as it could be or as imagined is because I think the market will begin to look at some of the silver lining to the election. Since the republicans have taken full control of government -- house, senate and presidency -- the market may view this as an opportunity for the economy to enter an era of deregulation. Maybe we could see Dodd-Frank repealed and Obamacare dissolved. This would be pro business.
Also, the market probably expects that a large part of Trump's rhetoric during his campaign may have just been an act to help secure the Presidency. He certainly was very toned down during his acceptance speech. In fact, that's when you really started to see the market rally back. Rather than continue down his path of wanting to appoint a special prosecutor to put Hillary in Jail like some third-world dictator, he has some rather warm things to say about Clinton which likely assuaged some fears that he may be completely off the reservation. It puts him back on the reservation so to speak.
Finally, it's important to remember that the SPY has already touched down to oversold conditions on the daily chart and the $VIX reached a high of 77 last week. Now clearly the market can re-test those lows and perhaps there may be some selling ahead, but we're already fairly close to oversold conditions. We haven't bounced far enough. So chances are we get back to oversold pretty quickly in the markets if we start to really turn lower. So we'll see how the day plays out, but in terms of our position in Apple, we're still on that time-table. If Apple decides - for whatever reason - to sell-off here, then from a cycle point of view we should see the stock trading near its highs in either late January or early February at the latest.
A lot of people may not have caught this but one huge positive this morning for Apple -- and this is a gigantic positive -- is that it's RSI loss has jumped up to -3.08 per point today. That's a big deal because unlike the December 2015 situation when Apple fell $16 from its peak rebound to hit a 20-RSI, the RSI loss was in the 1-2 range. Meaning, the stock fell a lot further because it was losing very little RSI on much much larger percentage moves.
Now what this loss tells us is that Apple is going to hit another 30-RSI at much higher levels. IN fact, at the current pace of -3.08 we're talking bout hitting a 30-RSI again at the $106.91 level -- that's a mere $1.30 below where it was last time it hit the 30-level. That's huge. I would be happy with that to happen today right now or even tomorrow. That would be fine with me.
Notice that once Apple hits anther 30-RSI, the probability that this leg is the low skyrockets tremendously. Normally when you get to 30 the second time around, that is the bottom leg. Meaning whatever low Apple hits during that leg is the low point for Apple's RSI and now we're in the era of either sideways trading or the rebound era. Now given that we're in a March spread, it is very positive for us that Apple has decided to correct when it has. It's better that we're seeing a 30-RSI now here in early November than to se this happen in January or February for example. Remember, that at a 30-RSI, we're at levels that are generally below anything from 6-18% at Apple's peak when it realties. It depends on what comes next. But in most cases if it's a 20-RSI event, then you get a 20% rally which far exceeds Apple's price at a 30-RSI. If it's a bottom here, then we generally see a 10-15% rally which again is far above current levels.
The point is that you can expect that Apple will be at levels that are 8-15% higher than where the stock current trades at some point in time between now and March and that has been 100% the case in all prior sell-offs. Every time in 2015-2016, that held to be true (and the time period back then was 1-3 months at most). Again, please review the analysis on what happens when AAPL goes to extreme oversold readings & hits a 30 RSI:
Just as important as this sell-off we're seeing is the RSI point loss or point gain. In some ways, it's even more important. If Apple rallies $2.00 and gain's 15-RSI points, that's terrible. If it falls $2.00 and loses 6-RSI points, then that's actually fairly positive. It means oversold levels at much higher levels which in turn means a bottom at much higher levels and a peak on the ensuing rally that are at much higher levels.
For example, with this -3 point loss per dollar, Apple is on pace to hit 30 at the $106.91 level and at pace to hit 20 at the $103.61. Contrast this to December 2015 when Apple hit a 22-RSI (not even 20) at $91 a share.
Ok. So at this point, there are a few outcomes I would be happy with. First, if Apple sold-off and closed at its lows today at say $107.50 or something like that. That would be good as long as Apple then continues to sell-off every day thereafter until it bottoms. That would be the best of all outcomes for us. Notice that if Apple hit a 20-RSI at $103 a share, a 20% rally would put the stock at $123.60 a share. So you see, Apple getting down to $103 and hitting a 20-RSI would not be the end of the world. And normally that rally would mostly completely within 5-6 weeks. That has been the timing to put up 20%. So you're talking bout Apple hitting $103 by say November 16 and then hitting 20% gains by the time we hit New Years. That has been the cycle. if Apple does what it did during the 2015-bear market worst, it would trade sideways until New Years and rally back to its highs by mid-February. So you see, even in the worst case scenario where Apple traded sideways for 5-weeks, we would still be back at our highs at least two-months ahead of our expiration. Either way, we are good if Apple falls to a 20-RSi in the near-term.
The other scenario that works for us is if Apple were to double-bottom here today and then start to rally. Why? Because Apple already hit a 30-RSI once a few days ago and it's a huge deal when the stock goes down to test its lows and holds. Chances are if Apple does this and starts to rally, we get a huge push through our $111 peak. So either of those scenarios works well for us. And in the latter scenario, you could expect Apple to peak somewhere between $116 and $120 a share.
Notice that if Apple manages to rally back to close in the green or at least significantly reduce its losses today, that would be a big bullish hammer of of a double-bottom. That's pretty darn bullish. Even here it looks like a massive reversal off of the lows:
Now think about this for a minute. The worst case scenario that the market envisioned last week was a Trump victory right? We had some selling in the market that lead to oversold conditions. The biggest risk to Apple in the near-term was a Trump win. Yet, after all of that, the market is now green and Apple is down a mere 1%. Now that is a big deal because a major part of this sell-off that we've seen in the last few weeks could attributed in some part to the uncertainty surrounding the election. But now that this is behind us, there aren't a whole lot of catalysts left to push the market and Apple lower from here. So we may be setting up here for a full blown rally in the market and a recovery in Apple.
What's more, starting out the week we saw that huge gap up pretty much across the board in the broader market. What's meaningful about this move is where it's happening. A large gap up from the 200 day on the S&P 500 and the Double Bottom for the Nasdaq. Further more we do have follow thru. Here is a glance of where things are with the SPY & QQQ.
SPY - notice where we bounced right off the 200 day moving average. If there's ever been a place to get long, more often than not it's historically been the 200 day as valuable discount when it comes to relative value.
So what we can see here is things are near term bullish; the primary term is bullish; and the intermediate term is categorically "In-Range."
But there are still some concerns as we head to the close of the year which we'll address. First off, although we may get a strong follow thru rally on this post election period, we'll have the next subject that the market will most likely get jittery about which is the interest rake hike come this December. Whether or not that happens is yet to be known, but it's back on the table for discussion come this December. So we may see a thwarted Santa Claus rally or perhaps some more volatility ahead of the next leg higher.
Our view has not changed in that we believe this market will yet make new highs ahead. Not just new highs but that we will most likely enter an entirely new bull cycle and year long melt up rally. Again this is on the primary term trend which means this rally could happen months away. We don't mean that new highs are coming next week or month. But we will outline a full bear case for what it would look like to dismantle the bull market. It's important to always keep that analysis in the foreground as a possibility so we will be outlining in detail what it would take for a BotTrigger sell alert to be triggered. Until then, the BotTrigger Buy signal on this market still stands on the primary term trend. Take a look at the Buy & Sell side alerts here on this SPY chart, where they've been triggered. Notice BotTrigger does not catch exact bottoms or tops, but are nearly damn close. Right now, the benefit of the doubt continues to go to the buyers in this market. Until we get an official sell alert, we will be buying the dips or strong breakouts as we discover them.
