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Zach Bass (a.k.a Ernie Varitimos) is Chief Bloviator of Investor in the Wilderness. He has 30 years experience as a Tech Maven, Investor and Consultant. Zach has been using Macs since their introduction in 1984, and investing in the markets just as long. His mission is to help guide all level of investors through the Apple Ecosphere and make sense of the markets. Zach's take on Apple, the markets, and life pursuits, will keep your mind tuned.

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Apple Investors, the Bear is Back

July 28th, 2008 • Related • Filed Under
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There was no specific news that caused today’s selloff, Oil wasn’t a factor, other than the usual talking down of the economy and how financials are crumbling by the financial news desk talking heads. The financial breakdown  was probably spurred on by the two banks taken over by the FDIC over the weekend. Also there was the 60 minute charts on the S&P and mid-caps that showed a bear flag pattern, which I mentioned in yesterday’s post. Apparently the 60 minute timeframe played a more significant role in the market’s fall than the daily charts this time.

The Dow took it on the chin, losing 240 points, or more than 2 percent. The S&P 500 struggled to maintain critical support at 1240, but eventually gave in, falling into Bear territory to 1234. And the Naz followed suit, also falling back into the Bear’s grasp by shedding 46.31, to end the session at 2264.

AAPL was really hit harder than most, and led the tech sector demise losing nearly 5 percent, down 7.72 to 154.40. AAPL found support on the gap-up from back in April. Apple has been pummeled with bad news from the MobileMe front, and the Steve Jobs health issue with an “off the record” conversation with a NY Times reporter.

So, it looks like investors are intent on flushing out the financials market, concentrating on Merrill Lynch (MER) and Lehman Brothers (LEH). It’s odd, because at the beginning of the day, things looked Ok for these two as they started the first hour of the trading session up. But it wasn’t long after that they rolled over exposing their bellies. The mid-caps seemed to lead the decent with little support, as they were already trading below their 50-day and 200-day moving averages. Once they went, then the rest of the markets followed like lemmings over the cliff.

A few days ago, I really felt the markets were protected from retesting the lows like 1200 on the S&P, but today’s action was so strong it was a wake up call, something that should be respected. If the S&P loses 1220 it could easily retest 1200, and if it loses 1200, the next leg down could be as low as 1150. On the Dow, the critical support levels are at 10,900, and on the Naz it’s 2155. If we fall below any of these levels the selling may accelerate. The good news, if you can call it that, is that as we approach these critical support levels, the markets will become severely oversold and the MACDs will have plotted strong positive divergences. So, in the final analysis, we may just get a backtest, followed by a strong reversal. Don’t bank on it, just consider it as a potential outcome.

From the AAPL perspective, if we lose 154, then the next support level is 145. After that, it’s a long ways down. In my opinion, AAPL right now is a huge wild card with recent stock price upgrades, record earnings, and strong retail action. The best way to play AAPL is from the sidelines. The best way to play the markets is to watch the critical support levels, if they are compromised, then short away.

Do you want to become a better trader, cut through the froth? Then check out the Wilderness Investors Group. Click here to learn more and request membership. We have a vibrant community, over 500 strong, where you will gain valuable knowledge and insight on trading and investing in Apple.


 

  • Thom
    Talking to a dear friend of mine at GFI. He's an exotic swap rate trader - basically places bets for major financial institutions on the direction of the yield curve between different benchmarks like the 3-month Libor v. 10 T-bill. He handles billions of $ a day and sees the underlying health of the global economy. He says is getting worse and worse every day and feels bad for the equities market. He doesn't see recovery for some time.
  • Bryan
    I think the market got word of MER selling more stock and decided to unload all day. That and the bank news but mostly MER
  • taojones
    Zach I'm getting whiplash here! your going from strong bullish signals to hell in a hand-basket over a weekend. I think we need to re consider the time frames of your tea leave reading. i'm not finding anything particularly useful in your analysis lately.
  • I know, I feel the same way! I personally feel like I'm caught in the froth of a crashing wave. These wild swings are characteristic of a down market at transition. The best I can do in these situations is provide what I see in multiple time frames. If you look back at my analysis in the past few posts you'll see that I refer to the weekly, daily and 60 minute time frames and how they are influencing one another.

    For example, yesterday's post I mentioned that the daily charts looked bullish, yet the 60 minute charts were bearish to indeterminate. When you have conflicting signals like this, all you can do is provide your best guess on both sides of the equation.

    In past posts I have referred to the weekly timeframes as being much more favorable. Now some might conclude that the higher order charts (larger time frame like the weeklies) might have more influence over the lower order charts. And while this is true in a general case, it is not so true during periods of transition. It is typically the opposite, where the 60 minute charts lead the way, and they change with the direction of the wind.

    So, I apologize that my analysis has been frothy, and I wish there was a better answer, but there isn't. This is why during this period I have recommended to stay on the sidelines. It is the best advice I can give, and the best way to preserve your capital until there are better conditions from which to read market sentiment.
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