Not Buying

It’s hanging out in my buy zone today (S&P 1627 right now), and could still put in some sort of rounded bottom here, but the intraday action has been very uninspiring so far. I’m daytrading it, but not swinging long.

A Symmetry Set-up for Next Week

I said in the last post that I would watch for an ABC correction (down-up-down) down to at least 1630. So far so good. The market sold down to 1635, bounced to 1674, and sold off again to close today at 1631. Of course, there are no guarantees that this is just another minor correction and we’ll be off to the races in a week or two (for the expected wave 9 that I mentioned on 5/15), but if it wants to do that then I think it makes sense to figure out where it might bounce.

One thing that’s good to watch for in the market is symmetry. One form of symmetry that occurs frequently is when different waves have the same length. For this current move down (the last couple weeks), there are three places to look for symmetry: (1) the last correction in early April; (2) the first push down of this correction (the “A” wave); (3) the first push down of this “C” wave (which itself might print an abc down pattern). In the chart below, the first red line is #1, the last correction. The second red line superimposes that move onto the market peak from 5/22. The first yellow line is #2, the “A” wave down, and the second yellow line superimposes this onto the “B” wave peak. Finally, the first cyan line is #3, the “a” wave down within the “C”, and the second cyan line superimposes this onto the “b” wave peak.

Thus, we have three separate symmetry targets, and in this case they all end in the 1622-1628 area. This is very nice confluence. It also lines up with a small congestion zone from 5/8 to 5/13. This looks like a nice setup, but of course there is no guarantee that the market will not just sell right through this area to test 1600 or below. So if you take this long trade, where would the stop go? The wisest option would be to wait to see if it puts in a strong bounce off the bottom (gap down or sell hard down into this zone then ramp higher the rest of the day, or something like that), then buy it with a stop under that low. This entire move since November has done of great job of not quite reaching downside targets where the shorts want to cover and the bulls want to buy the dip; when it reverses early then shorts and bulls alike are all scrambling to buy. Of course, a gap up and ramp Monday would accomplish this trap even better, so that’s possible too.

The ostensible bogeyman for this move down is rising interest rates, so keep an eye on the 10-year T-note (1.64% on 5/1, 2.16% on 5/31)  and also some (faux or not) news about the Fed not tapering QE Infinity until at least the end of the year.

Pullback

There was a nice blow-off top yesterday morning followed by a hard selloff. So far this is all in line with what I was looking for in my last market update. I don’t have a ton of confidence in the short-term wave count, but my baseline expectation remains for this to be a reasonably quick pullback, followed by another wave to test the highs. It has bounced pretty far off this morning’s lows (S&P low was 1635, now 1653) and it’s possible that will be the extent of the downside, but I’m hoping for another push lower (to form an ABC correction pattern and to reach at least the 38% fib retracement of the prior move). It would be prettiest if it bottomed somewhere in the 1593-1630 area, and my guess would be for the higher end of that range. S&P 1625 and Dow 15097 look best to me, but I’ll try to wait for other signals before jumping in.

AAPL has been holding up well. The exit plan of half off in the 440s and let the other half ride still looks solid.

AAPL

AAPL sold to 419 this morning and is now bouncing hard (currently 437). If you bought at my suggested 420, I think a reasonable plan is to take half in the 440s and half in the 490s, with a stop now under 420, maybe 414.

Exuberance

The big picture numbering off the 2009 lows continues to look good (weekly S&P):

Nearer-term, it has refused to give me the pullbacks for long entries that I was hoping for, so I still only have 25% long since 1540. As I discussed, the market had two nice opportunities to print head and shoulder patterns that would have given clear pullback targets, but both times it chugged right on higher, barely even pausing at this long-term topping area (monthly S&P):

The most recent move looks like 7 waves now, but impulse moves should be either 5 or 9 (an “extension”), so I expect another 1-2 week mini-correction pretty soon, followed by another push higher, then a larger pullback. My 25% long position is eligible for sale in a few days, and I probably will sell it if we continue to push up into the upper 1600s. On a pullback, I will probably hold my nose and buy a retest of that trendline in the prior chart.

Here’s the 60min S&P:

Fundamentally, not much has changed. The world economy is weak, revenue growth stinks, and central banks all have very easy money. What has changed from 6 months ago is that there doesn’t appear to be imminent disaster anywhere. In particular, the brinksmanship in Washington has lightened up (to my surprise), and the European bond market is chilling out. Valuations, while quite a bit less attractive than they recently were, are still in the realm of reasonable, especially given the extremely low interest rates.

AAPL spent a total of 30 minutes under the bottom of my bounce zone (390), then went up as high as 465. It’s selling off again pretty hard today, currently 427. I’m considering a buy at 420, but most likely I’ll just steer clear.

I’ll be travelling all summer, so there might not be any updates here for a long time. My overall approach will be to be pretty cautious during the summer since I will not be watching the market. In my slow account I will probably sell 1675+ and buy 1600ish, staying at most 50% invested and saving the rest for if we ever get any larger pullbacks down to 1500 or 1400.

Earnings

The early reports of this earnings season have been supportive of my correction expectation. Earnings have been beating the lowered estimates (as they always do), but revenue growth has been anemic and the outlooks pretty meh. As planned, I did buy a 25% long position at yesterday’s close (1541.6) in my big slow account (just in case my analysis is wrong), but my trading accounts are in cash and I’ll be looking to reshort if we get back up near 1570. I also took the cautious route and dumped my AAPL this morning at 398.50 for -6.50. Earnings are Tuesday after the close.

403(b) Plan

The largest account that I manage is my wife’s 403(b) account. This account is long-only with a limited selection of choices (pretty much I can choose large cap, mid cap, or small cap, and value or growth, with a Europe fund and an Asia fund thrown in), and a requirement that any fund purchase be held for at least 1 month. All trades are made at the close of trading on a given day. My method for this account is to think in terms of 25% increments, with 4 “blocks” of money that can be either out or long. I sold my last long block a couple weeks ago at S&P 1570, in anticipation of a correction (I missed that last thrust higher, but it happens). Now that we appear to be having said correction, I will look to scale in long again as we pull back. My plan for re-entries is 25% each as close as possible to S&P 1540, 1500, and 1475, with adjustments depending on news and how the market is trading. As I’ve said before, my expectation is that we will now correct the move from S&P 1343 to 1597, so it should be larger than the other pullbacks we’ve seen recently. The economy is sluggish, growth is missing, but valuations are OK and there are no other attractive places to put money, so I still view this as a dip to buy.

I will buy my other 1/3rd AAPL position on a flush under 400. I’m not planning to have a stop in place, so I’m not sizing the position too large.

AAPL update

I’m buying a 2/3rds position in AAPL here at 405 for an intermediate-term buy and hold.

The positives: Lots of technical support in the 390-400 area. Valuation extremely attractive. Possible high volume flush-out day. Earnings report in a couple weeks.

The negatives: Peak earnings last year? Just broke a support level at 420. All the support at 400 is super obvious. Moving lower on high volume. Overall market might be in a correction phase. Earnings report in a couple weeks.

Zoom zoom

Well, I missed that move. At least the market was kind enough to go straight vertical for 50 S&P points, so there was never a decent setup for me to short the potential right shoulder or double top. The S&P is at 1585 as I write this, and I still think we’re likely in a short-term topping zone, but there’s nothing nice to push against for a short trade. In other words, if I short here, where should I place my stop? I have the 1589 target, but big round numbers are also magnets, so it could run for 1600. I think I might put on a half position short with a stop in the 1590s, but that seems like a fool’s gamble in the absence of any signs of weakness.

Bingo

In the last post I said I was looking for a Dow top in the 14,678 to 14,746 range, and S&P top at 1574 or 1589. The Dow topped at 14,684 and the S&P 1574 and as I write this they are down to 14,454 and 1542, respectively. Nailed it.

We’ve gotten a decent-sized pullback so far, but my charts suggest this should be a larger correction than the last couple, at least down to S&P 1520 and maybe as far as 1465ish. One possibility that I think would look nice would be if we held the current level for now and put in a head and shoulders top like this:

 

If we do bounce from here, I’ll be looking to reshort 1560-1563. The nice thing about head and shoulders patterns is that they give a nice obvious target area. In this case, the target would be 1503. Again, I think the longer-term structure is bullish, so this will be a correction that I look to buy.