Saturday March 31st 2012
AAPL Falls....NDX Lags...ISM On Deck.....Turning Point?....
by Jack Steiman www.SwingTradeOnline.com
Three days ago, Apple Inc. (AAPL) printed a doji candle after a long run up. In most cases, 90% or more, and especially if you're not Apple, it usually means that the stock has topped out short-term. A doji, meaning a candle that gaps up and shows indecision after that gap up, where buyers no longer can take it up with sellers holding the line for the day. A stock will open and close at, basically, the same price. Apple, for once, has followed normal protocol. It has fallen off that candle stick the past two days. It has helped the Nasdaq lag behind the Dow and S&P 500.
Both of those indexes were green yesterday, while the Nasdaq finished slightly in the red. Is this a red flag for the market? Not really. Apple is very heavily weighted, and while it was down ten dollars, which really weighed on Nasdaq, other Nasdaq stocks did well enough to keep the losses to a minimum. Once again, the market has found a way to do some unwinding on those overbought oscillators where it needed them the most. The Nasdaq is the only index that is officially overbought on the weekly charts. RSI was just over 70, coming into the trading day on Friday. That was, basically, all the responsibility of Apple. That which led up, helped lead down, but again, that was normal protocol for the stock market.
Apple has a plethora of support from 575 to 590, which includes the 20-day exponential moving average to many, many gaps. It will be hard for Apple to lose that 575 level initially, unless some very bad news hits the stock market, and even then, when Apple goes lower, people fall all over themselves to get in, thus, it'll be a tough journey for the bears to break it down. It could happen, of course, but the job will be a very difficult one to say the least. There have been rumblings about the iPad 3, such as excess inventory, because it's not that much different from the iPad 2.
There have also been complaints about its weight and battery issues. With Apple being grossly overbought for ten straight weeks, where its RSI never went below 70 for a single day, and often touching near 90, and with these new issues at hand, this stock may find it tough sledding for a while. That really isn't a bad thing for the Nasdaq weekly chart. It can have a chance to, hopefully, unwind decently below that 70-RSI level, which would then offer up the necessary energy to move the index back up higher again with some force. Apple will be a key stock to follow in the days and weeks ahead, with regards to that 575 level, folks. As long as it holds, it's likely the market will hold up well. If it breaks with force, we may be seeing a trend change for the short- to mid-term, where things will be more difficult for the bulls.
We will get some real insight as to what's up next for this market on Monday. The ISM Manufacturing Report, which is a very important report, will be coming out on Monday, with the number that will tell us whether our economy is in expansion or contraction. It will definitely still be in expansion, but the market wants to know whether it will continue to do so, or whether things are starting to slow down and head back towards the recessionary level that will spook equities. 50.0 is the level between expansion and recession for our economy. We have been slowly moving up from that key 50.0 level the past several months, finally pulling away from 50.0 the last two months. We did 52.8 last month, and the expectations are for 53.4 this time around. If the number comes in at, or very close to 53.4, the market will be just fine, even if it sells off just a bit initially.
However, should the number come in surprisingly weak, let's say, at below last month’s figure of 52.8, the market will be very unhappy and would likely sell off very hard. Now, if it should come in surprisingly strong, anything above 53.4, you won't want to be short a single stock. The market would likely celebrate this event, and jump up through resistance at S&P 500 1414. There's a big build up towards this number, with all eyes on this report thirty minutes into the trading day on Monday. It has the potential to be a huge market mover and a trend changer. You'll want to be around when the news comes out.
We have some interesting news this weekend out of China. They are getting a fresh set of manufacturing numbers of their own. The news here will also be closely watched as China has seen their manufacturing, and their economy in general, hit a slow patch. The news, when it first came out, was a shock to our market, and those stocks related to their growth and to China's stock market. It took a huge hit as their economy was thought to have been growing, thus, equities fell hard.
This is why the numbers that were put out this weekend are so critical to their market, and in many ways, the U.S. market. If the news continues to be poor, it doesn't bode well for future growth here at home as exports will be curtailed. Jobs could be lost. Our economy would likely take some type of hit, although, how much, is very much an unknown. So, with China getting their figures in this weekend, and we, here at home, getting those numbers early Monday morning, the stock markets here and abroad are about to make a more forceful move. The direction is yet to be determined.
We have spent quite a bit of time at overbought on many of the key index charts over the past several months. That has now taken another step in that the weekly charts on the Nasdaq and NDX have joined the party. Apple is the single lone culprit for this occurrence, but overbought is overbought. The S&P 500 was just shy of overbought by three points. Markets tend to struggle more when they get overbought on the weekly charts. The level of overbought is not severe, but it is overbought a bit.
RSI's can climb higher still on the weekly charts, but they are, at the least, in the red-flag zone, meaning caution is advised. It tells you that the risk has increased quite a bit over the past several weeks. It means that you probably shouldn't be overly exposed in equities at this moment. But it doesn't mean you shouldn't be involved in stocks. After all, we are still in a bull market. You always want some exposure in a bull market, just not as much now as you may have had weeks or months back. S&P 500 resistance is first at 1414, and then 1440 to 1450. Support is powerful at 1370 and 1359. It will be tough for the bears to get the S&P 500 below 1359.
We will watch and learn as Monday comes and goes. Once the ISM Manufacturing Report numbers are announced, we will get a real feel about what this market wants to do short-term.