February 22, 2013 (6:00 pm)
The market has done almost precisely what we laid out in our Wednesday night post. We wrote: “Since the downward momentum this [Wednesday] afternoon was so strong, we expect a to see a lower low ahead, bringing us into oversold conditions. The market should bounce out of these conditions, which would represent a re-test of the highs. If this re-test fails to achieve a higher high, an intermediate-term correction will likely follow.” Here’s where the crystal ball gets murky. Will the market continue up, or did the downward spike on high volume yesterday forebode a coming breakdown?
We expect the market to seesaw, likely with an upward bias, for the next few days. Only after a failed re-test of the highs would we expect a full break to the downside. While we wait for the market to make a move, here are some stocks we’re watching.
Apple. Apple has formed yet another trend line. As you’ve probably noticed, we’ve been watching these trend lines closely. The blue and orange trend lines have proven to be very significant throughout the entire correction. We can now add the new green trend line to the list. At some point, there will be a massive rally. When, is anybody’s guess (maybe around the Board meeting in mid-March). But we’ve done a significant amount of research and analysis around this and you can take a look at our posts over the past four weeks to get a sense of why we expect the shares to revert to a more normalized price range.
On February 1, we wrote a post comparing the green and the blue 1-2-3 zone’s below. Interestingly, after the green low (E) was established, there was a quick rally and another brief sell-off. We just saw the same price action (blue E), with a quick bump and re-test of the lows. During this re-test, the bears failed to reach a the previous low. Could we be seeing a repeat of that price action that led to a dramatic rally? Remember, technical analysis is based on the assumption that history repeats itself. To technicians, it doesn’t matter why something happened, only that it happened. We just wanted to point it out.
Starwood Hotels. A very long-term, significant level of support has formed on shares of HOT. You can see the recent negative divergence that preceded a steep sell-off from $63 back down to the support line near $59. The shares held the line and bounced off it. Additionally, the 50 day moving average sits right at that support level.
Las Vegas Sands. The $48 level has proven to be a strong support/resistance level. The shares tested and bounced off that level during the sell-off yesterday, and proceeded to form an island bottom today. If the shares hold the $50 level for the next couple of days, this island bottom could signify that a rally is in the works.
Netflix. Shares of NFLX have formed negative divergence with each push up. The stock broke down from a rising wedge that has been forming since its post-earnings gap up. We’re holding our puts here; however, one thing that concerns us is that lack of confirmation by volume. When it broke down, the volume remained at a depressed level. We’ll continue watching this next week.
NASDAQ ETF. The QQQ’s have an interesting push and pull going on. It’s been tiptoeing back and forth across the significant, long-term $67.75 support/resistance line. The shares needed to decisively break above that level. It has failed to do so, which is bearish for now. The three month uptrend is now decidedly neutral, with a bearish tone. With the RSI and Chi-Osc in neutral levels, the full out rejection as the shares attempted to break above that level favors the bears.
Blackberry. Shares of Blackberry (no longer named RIMM) have formed a large symmetrical triangle with a $6 target move. We have two touches of the upper trend line and three on the bottom. With both RSI and Chi-Osc slightly in bear territory, there’s more room to the upside than the downside (unless the shares consolidate). It wouldn’t be surprising to see a move to touch the upper trend line. Will it break to the downside before it has a chance?
Sony. SNE has formed a very long-term downward sloping trend line over the past two years. It recently gapped above the trend line on exceedingly high volume. It’s now re-testing the trend line. Will it hold as support here, or are the shares destined to fall back below the line with the less-than-stellar Playstation 4 announcement this week (which won’t be released for 8 months!).