Key Takeaways
- Wednesday’s about-face to close at new weekly lows keeps trends bearish
- AAPL’s Support violation of 150 keeps Technology and Market indices moving lower
- Two different cycle composites both suggest weakness into June before a real bottom
The early rally attempt post Wednesday’s “hot” CPI print had many convinced that bad news might not be resulting in declines anymore, which some interpreted to be bullish. Unfortunately, the mid-day reversal carried prices back down to lows for the week, making it yet again “early” to expect any meaningful bounce. Overall, weekly SPX charts show prices now hovering above the first technical target unveiled at my 2022 Technical Webinar presentation in January 2022: 3815. This lines up with a 38.2% Fibonacci retracement of the entire rally from early 2020. However, while price is getting nearer, time still looks early for a low, which points to June as being more probable. Bottom line, if 3815 is broken, it could be likely that 3500 might come into play. This lines up with a 50% retracement of the 3/20-1/22 rally and lies right near February 2020 peaks. This cannot be ruled out as a possibility if this selloff starts to accelerate. Furthermore, despite sentiment having turned bearish, there hasn’t been sufficient capitulation yet, and my own proprietary cycle composite along with Exhaustion indicators point to 4-5 MORE weeks of possible selling before lows are in. Overall, it’s wise to be defensive and it’s wise to be patient. When investors tire of buying dips, then an attractive low should be close.
What does Apple’s (AAPL) support violation teach us about gravity, according to Newton?
Rumor has it that the apple dropping from that tree in Woolsthorpe Manor in the 1600’s made Newton develop his law of universal gravitation. Whether or not the apple bonked him on the head or not is open to debate. However, AAPL’s recent violation below $150 certainly has bonked quite a few investors which had flocked to this stock as one of the few last standing Generals which haven’t been “put in front of the firing squad” just yet.
In paying a bit of homage to the family name, we Newtons always like to discuss gravity of course, when it’s appropriate, and my own technical reports shed light on this back in November 2021, when DJ Transports, Russell 2k, and NASDAQ Composite all made their respective all-time highs. While I’m reluctant to take any kind of victory lap just yet, it’s important to discuss the current degree of selling in AAPL and what could be in store given its huge weighting within SPX and QQQ.
As shown below, the $150 level truly looked to be important. In recent weeks I’ve discussed why $270 for MSFT and $150 for AAPL was important. These two stocks had avoided much of the carnage seen in AMZN, FB, NFLX, and GOOGL. Now both have begun to follow suit and drop to new weekly lows.
Technically speaking, AAPL is not oversold on a daily, nor a weekly basis. (After all, this breakdown just started given AAPL’s break of a support trendline from October 2020.) We’ll discuss the main cycles driving AAPL’s swing in another email. For now, suffice to say, AAPL’s trend has turned more bearish with Thursday’s 5/11 drop under $150.
Bottom line, AAPL’s drop to $150 should take this down to challenge last October’s lows near $138. While this could be a minor resting place, real support seems to lie near $133, as well as $118, which is a decidedly bearish drop of nearly 20%. This latter level would represent a 50% retracement of the rally from 2020 as well as intersecting the larger uptrend line connecting 2018 lows to 2020. Thus, $118 is very serious, but also an excellent technical entry point for longs. Overall, I am not convinced AAPL needs to drop to this level, but suffice to say, AAPL longs should consider holding off on immediately buying dips, as I feel it’s premature for this to bottom.
Market cycles still seem to favor near-term weakness into June
Two cycle composites which were discussed back in January 2022 showed investors that markets might experience 1st Half weakness this year without taking into consideration anything regarding price trends, the January effect, Mid-term election year seasonality, or sentiment. The first stems from some proprietary cycles that I lumped together to create a composite from my studies at the Foundation for the Study of Cycles. The daily cycle for NY Composite which peaked back in January has a downward bias into June of this year. Then this turns up sharply into early September.
The second composite was created by choosing several cycles of various lengths and stacking those one on top of one another to create a larger Composite. W.D. Gann called this his Mass Pressure Index. (I would encourage those with questions on this to seek out books on Gann, as he proved to be a true pioneer along with Dewey and Hurst on how cycles affect market movement). Given my experience with having viewed how this worked in recent years, I decided to use the same cycles from 2020-2021 for 2022.
The results thus far speak for themselves for 2022. (The white line is the SPX, while the blue line underneath is the composite and its projection for 2022). The composite called for a down January, a choppy February period, then a rally into mid-March. This turned down sharply in April and stays lower until June. Then a bounce and retest in July before turning up for the balance of 2022.
While this is merely one piece of the puzzle, in terms of analysis I utilize to forecast markets on a longer-term basis, it does still look useful, and has certainly been accurate thus far.
Additionally, the weakness into June directly lines up with DeMark indicators (using my own interpretation), which look to be 3-6 weeks away from any intermediate-term low. I’ve analyzed quite a few indices on an absolute and relative basis, and most things point to this time in May being premature for anything more than a trading bounce. Bottom line, while a short-term bounce could materialize starting Friday/Monday 5/13, 5/16, I’m skeptical we bounce too far given the extreme downward pressure in both of these cycle composites. Stay tuned for more updates on this at the end of May/early June.
