Markets look to have turned down on schedule. However, I suspect this won’t prove easy for Market Bears, and cycles show a potential turn 8/7-8/9, which I suspect will be a trading low which then results in SPX turning back higher back above 4600. I am skeptical 4350-4400 is reached on this initial selloff from 7/27 peaks.
Simply stated, Wednesday’s deterioration proved to be one of the largest one-day declines over the last month, but largely happened right on schedule based on cycles and sentiment.
As discussed last week, breadth deterioration coupled with DeMark exhaustion, cyclical peaks, bullish investor sentiment and some minor defensive strength provided a window for when markets might face strong resistance and begin to retreat.
Importantly, keeping track of 90, 180, 270 days, weeks, and months from prior highs and lows typically can provide ample clues when a possible change of trend might occur. (As well as other key angles of the circle, such as 45, 60, 120,135, etc). (This was initially discussed by W.D. Gann more than 100 years ago.)
(Not only was last week important based on it being 180 days from our February peak, but also 180 months from our Mid-February 2020 peak, which preceded a quick 33% decline in 33 calendar days ( 1 unit of price per unit of time) in SPX before bottoming in March 2020. Additionally, as discussed, markets fell for just over 40 weeks into October 2022 to mark bear market lows before rising 40 weeks into late July in the exact time (which, when looking back to 7/27, provided a glimpse of why keeping track of time is so important in markets).
Overall, I don’t suspect that the current decline will have all that much longevity nor cause too much technical damage before bottoming and turning higher again. My next key period of importance lies near 8/7-8 which lines up with early next week.
The Hourly S&P Futures chart below shows the break of former lows in what is properly referred to as a Head and Shoulders pattern. (However, this is merely a very short-term, hourly pattern, and doesn’t carry the same negativity in magnitude as a weekly or monthly Head and Shoulders pattern.)
If this pattern lines up with what many short-term Ellioticians are saying about this formation, this could very well turn out to be just an ABC-type corrective wave, as opposed to the start of a larger decline, which takes SPX down to 4400. (This might very well happen sometime this Fall, but seems unlikely right away.)
My ideal target for SPX on this selloff is 4454, which is a Gann-derived target based on the 7/31 high close of 4588.97 using the Square of Nine Chart. Given that this latest leg down could reach 200% of the initial pullback from 7/27 peaks near 4450, this would also be close to that level. Furthermore, this would allow the selloff to possibly find support near the prior peaks from mid-to-late June, which intersect at 4450-4458 (6/15 and 6/30) Finally, 4468 is near a 50% retracement ratio of the recent rally from late June.
Overall, the window for markets to bottom could very well materialize within the next few days, technically speaking, and provide a window of opportunity for those looking at levels just below current levels. One should consider 4450-4485 as being an important zone of support heading into end of week/early next.
Amazon looks to have peaked near a key price/time area in July at 50% of both Price and Time.
Amazon’s 7/19/23 peak at a closing price of $135.36 looked quite important for those who typically study ranges of former swings to find resistance.
This happened to occur right at a 50% retracement of the former decline from 11/18/21 into 12/28/22.
Importantly, this period in mid-July also was important based on time reasons. Specifically:
- 11/18/2021-12/28/2022 = 405 calendar days
- 12/28/2022-7/19/2023 = 203 calendar days
Thus, not only did AMZN price peak out at a 50% price retracement, but also at a 50% time interval of the preceding bear market decline. This kind of analysis is highly useful in my work and helps to explain why (in my opinion) some areas of Fibonacci support and resistance (Along with 50% retracements) sometimes work and sometimes do not work. If Time shows a clear ratio of the former price swing, it often adds to the probability of a possible change in trend.
For more on this, I would suggest investors seek out the books by Robert Miner “Dynamic Trading” or Bryce Gilmore “Geometry of Markets” I enthusiastically endorse both books for those who seek to understand the concept of how/why time matters for markets, along with the works of W.D. Gann.
At present the uptrend from last December remains intact, but has begun to wobble a bit in recent weeks. Some might recognize this pattern as a potential Head and Shoulders pattern from June which would be confirmed on a break of the neckline at $126.11.
At present, this pattern has not been confirmed and there’s no saying that price needs to go lower. This very well might just represent consolidation and allow for a push higher. However, a break of $126.11 would likely result in price weakness down to near $116.
However, a rally back above $133.87 could allow for a push up into $148 by 9/4/23. For those who understood my earlier comments, this would equate to the next area of importance where AMZN might find resistance at 61.8% Fibonacci-based area of resistance near a 61.8% area of price-based resistance.
Overall, I’m open to all outcomes on earnings, but suspect that any decline proves minor given the positive sloping nature of momentum on weekly charts, and suspect that a further rise up to challenge last August 2022 peaks very well could be “in the cards” (Note, this also lines up with that key $148 area discussed above) Thus, I like AMZN technically and would consider the stock a good risk/reward on weakness or on strength above $133.87. Given the recent churning, however, it’s a must to pay attention to breaks of its recent consolidation before making big short-term decisions. However, 7/19 proved to be important, and I felt to be worth discussing.
AAPL also beginning to waver – What’s Next?
Overall, AAPL remains trending higher from last December and has traded in a very symmetrical uptrend over the last seven months.
Price has attempted to break this uptrend, but heading into earnings, this is not clear that a trendline break has been confirmed.
Overall there have been some warning signs in momentum in AAPL for the first time all year on weekly charts, as RSI has not followed AAPL back to new highs on weekly charts.
Furthermore, DeMark based exhaustion signals are now present on weekly charts as well (Using TD Combo, whereas TD Sequential looks to be at least three weeks away, and maybe longer).
(Note, TD Combo 13 Countdown signals have not been confirmed, but this could happen by this Friday 8/4/23 on any weekly close under $190.67.)
Overall, I had listed upside targets at $197 for AAPL a few months ago and the stock has arrived at this technical target. However, there hasn’t been sufficient weakness to suggest the stock has begun to truly peak out. A decline back under $186.60 would start this process. (As many know, initial declines typically bottom and attempt to retest highs numerous times before any meaningful peak.)
Time-wise, AAPL trades in a bit of a different cycle from AMZN, and peaked 1/3/22 and declined for exactly one year, before bottoming 1/3/23. Thus, AAPL showed only minor wavering near its own 50% time retracement and a 61.8% time retracement arrives near 8/16/23.
Bottom line, AAPL for me does not appear like the best technical risk/reward as momentum has begun to waver following RSI’s push up to overbought levels on a weekly basis. (Monthly RSI has been diverging since last year, but is an unreliable gauge for timing exits, in my view.) However, it will take a move down under 186.60, last month’s intra-day lows, to have initial concerns about AAPL trying to peak out.
Even if this were to occur, any decline back down to 180, whenever this happens, likely will find very strong support near that level, as this represented meaningful former resistance for AAPL before being exceeded in late May (former resistance can often translate into support, technically). Movement back above $198 would help the stock likely rise to $215. However, AAPL has ongoing momentum issues and has gotten overbought on multiple timeframes, which makes chasing rallies difficult for most investors. Overall, until ample evidence of AAPL peaking arises, this trend remains bullish, but has begun to show some initial warnings.
Sentiment already beginning to drop from extreme levels
Interestingly enough, sentiment has been nose-diving over the last week as volatility has picked up in Equity markets.
As discussed two weeks ago, investor sentiment had reached bullish levels that had previously lined up with peaks when using traditional sentiment gauges like AAII, Investors Intelligence and Fear and Greed index.
However, it’s thought that institutional sentiment has been slow to change to bullish from bearish and remains very much neutral (Based on CFTC E-mini S&P Futures positioning data, and BofA Global Portfolio management surveys).
Overall, Fear and Greed has dropped from the low 80’s down from “Extreme Greed” category to just “Greed” in the last two weeks. This is a notable drop, and shows that investors are growing quickly less bullish as the US Equity market has softened in recent days.
I suspect that any further selling into Friday’s economic data might provide a window where investor sentiment has pulled back sharply amidst a backdrop of neutral intermediate-term institutional sentiment.
Bottom line, sentiment retreating quickly is a promising thing for Bullish investors to notice, as a quick move lower from bullish levels likely could coincide with SPX reaching support just as the next cycle low materializes. Stay tuned.
