We have reached a very important crossroads on bonds and equities as we wait to see whether the Fed will announce QE3 today. I was writing about the likely test of this level on SPX in my weekend post on the 19th August at Marketshadows and you can see that here. I've updated the chart but have left the comments on the chart as I wrote them then and they're well worth a read again today I think:
I've also marked up divergences on the weekly RSI on the chart and you can see that five of the six negative RSI divergences like the current one signaled retracements of over 10%, though it's worth noting that the 1997-2000 divergence took a long time to come good and might be better seen as two linked negative divergences into the 1998 and 2000 highs, just as the current divergence could be seen as linked divergences into the 2011 and 2012 highs. In the latter case however the 2012 divergence is not established until we see a strong reversal which would ideally be here:
here. RIMM broke support a few days later and I gave a conservative triangle target then at 21 which was hit in midsummer 2011. It closed at 7.42 yesterday. You can see that second post here.
What's my point? Well, it's that however much you may admire a company, you should never ignore technical warning signals, and I was looking at AAPL yesterday and thinking that the AAPL charts are now looking distinctly bearish, though not on the scale of the RIMM chart last year. The setup on the daily AAPL chart is that rising support from December 2011 was broken in July and then recovered. As you often see at key resistance levels (like TLT), AAPL gapped below support and then back over it. Since then a shorter term rising support trendline has been established and then broken, and a possible double-top has formed on strongly negative RSI divergence. On a break below 656 the double-top would be just over 630, for a 2nd test of that recovered rising support trendline. A second break of that trendline would look very bearish and I'd then be looking for a move to the strong support level and possible H&S neckline in the 565-70 area:
If we don't see that bullish break up then that bear case is still very much alive, and if we are to see a major high in the second half of 2012, then the most likely place is right here and right now. We shall see what the Fed have to say today.
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