Oct
2
The Stock Market is Still in the "Limbo Zone" but AAPL is Starting to Look Downright Scary.
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On the surface, last week seemed pretty uneventful since the indexes essentially moved sideways, but we think it’s only a matter of time before the market rolls over and we get a “significant” pullback. Many of the market leaders are showing signs of weakness and everything we see on the charts is pointing to a move down for the market(s).
It could very well start this week, though we have been, and are still, waiting for confirmation.
That confirmation comes when the SPY moves down into the red box. I left all the “boxes” in the same place as last week on the chart below, and we see the weekly bar was essentially contained in the “right shoulder zone” of limbo. Sure it peeked above the 1150 lever briefly, but we are waiting to see if it can can muster some price action in the green box. IF we start to see the SPY trading up in the green box, we will thank Darvas and plan accordingly.
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As I said last week, “My gut and my brain tells me the market should be in or headed for the red box”. but until we actually see that with our eyes, all bets are off. Last weeks narrow-range red bar in the “limbo zone” looks eerily similar to the one back in January, right before the market tanked. But as we said a couple weeks ago We wouldn’t short the market until it moves into the red box and below the 200-day moving average. That’s the confirmation we are looking for. However it sure will be tempting to take a trade in one of the leveraged inverse ETF’s soon.
The market is on “thin ice” here and the risk is very high. The trading analogy that comes to mind is dashing out onto a “barely frozen” lake to pick up coins. Each time you run out and grab one you hear the ice cracking and you quickly run back to the shore and think about the risk going back out for the next coin. If the coins were ounces of gold would you do it? How about silver?
Regardless of what the “market” decides to do, we have a great “Focus List” of stocks in the Research Lab. These stocks are the leaders, the darlings and the ones that will move up if the market advances. Keep in mind that the “market leaders” tend to get crushed on pullbacks, so there might actually be shorting opportunities on some of those names too, should the inevitable correction start this week.
It’s been a while since I posted some mock ups of charts with excellent potential, so here they are. The green box indicates a good buy point and the yellow area shows the likely trading range in a weak market. Some of these may turn into Trade Plans so be sure to check the Waiting Plans each morning next week.
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Keep a close eye on AAPL here as it appears a correction is underway. It wouldn’t surprise me to see the “mini” flash crash lows of last week tested. If that level gives, I would expect it to coincide with a significant correction in the overall market. It’s hard to see on the chart below but I am closely watching the crossing of the 5, 8 and 10 day moving averages and the price behavior around them. The 20-day should come into play soon too and perhaps act as support, but unless the downward sloping trendline is broken to the upside, I wouldn’t consider being long AAPL. Especially with the rare “monster head” pattern seen on the chart.
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Last but not least is the best looking chart on the watchlist. Keep your eye on INFA down the road for a good entry, perhaps near the lower end of the channel.
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While we expect to still see a few green days here and there, it really could be a “spooky fall” season leading up to Halloween.
Everyone knows the market goes up on Mondays, so my guess is we plant the “Beware” sign mid-week.
Join us live at the market open to see what we can do with the stocks showing up in the scan.
Enjoy your weekend!
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