Market Trends

Apple: An Inflection Point

April 12, 2016

Shares of Apple have spent the last 10 days consolidating just under the 200 day moving average. As we outlined in our early March post on the fundamental side (Apple: EPS Growth to Resume this Summer), we perceive the highest risk in shares is to the upside. Let’s take a close look at the near-term trends and work our way out to the longer-term price action.

200 DAY MOVING AVERAGE. Apple has been consolidating at the 200dma for two weeks. During the entire rally from early February, it established a trend of gapping higher than consolidating for a few days before continuing. That may be exactly what we’re seeing here. RSI has back off from very elevated levels, and shares have largely remained above the 8ema, which we view as the near-term trend signal.

AAPL 200dma

NEAR-TERM BULL FLAG. Here is a closer look at the full flag consolidation that shares have formed. The upper trend line is sitting essentially right at the 200dma. Shares have rallied strongly over the previous several weeks and it’s not uncommon for a brief period of consolidation before moving higher. As long as it keeps its support at the $108 level, the path of least resistance is up.


ESTABLISHED DOWNTREND. Since its peak in July 2015, shares have formed a downtrend. Interestingly, this downtrend line is sitting squarely at several crucial resistance levels. The first is the blue downtrend line itself. The second is the 200dma (not shown on this chart; see above). The third is the 50% Fibonacci retracement level of the entire correction since mid-2015. A break out from the bull flag would also pierce through all of these resistance levels that sit at the $110-$111 levels. It’s relatively clear air up to $120 above that.

AAPL Downtrend

START OF A NEW UPTREND? Clearly Apple has been in a sustained downtrend since mid-2015. A downtrend is defined as a series of lower highs and lower lows. You can see that beginning in late May 2015. However, the tide looks to be turning here. In January, Apple wasn’t able to achieve a lower low compared to the price seen in August 2015. That is beginning to look suspiciously like a higher low. Just the opposite of a downtrend, an uptrend is defined as a series of higher highs and lower lows. Therefore, if Apple is able to achieve a higher high (above the $123 level), it will objectively be in an established uptrend.

It’s also important to know how crucial the 25ema has been in signaling a shift in trend. See each of the blue inflection points marked on the chart.

AAPL Weekly Uptrend

25 EXPONENTIAL MOVING AVERAGE. We briefly mentioned the 25ema in the up/down trend analysis above. But this one deserves some more attention. Notice how each sustained correction is marked by three important attributes. The first is a several month period below the 25ema. The second is sustained bearish RSI (area highlighted in red). The third is a touch of the 0%BB (touch of the lower Bollinger Band on the weekly chart).

Before this most recent correction, there have been four cases over the past ten years that fit this bill. In each case, the shares crossed back over the 25ema at the same time the RSI crossed back into the green (bull) area above the 50 level. In each case there was a 16-30% gain in just the next 8 weeks. Shares were recovering from severely oversold conditions. This past November, shares looked poised to see the same strong run, but the rally failed. How will shares handle it this time?

Weekly 25ema

LONG-TERM TRENDS. The 8ema on the monthly chart is extremely telling, too. Above that line, shares are in rally mode. Below it, they are in correction. It’s almost clear as day. You can also see either a rounding or double bottom in each case. Of the three severe corrections in the past ten years (not counting the most recent one), shares have spiked 13-23% in the month following a cross back above the 8ema, and have continued to rally for several months. That’s where we stand today.

AAPL Monthly 8ema


Oil: Signs of a Bottom

December 10, 2015

As we reviewed the oil charts this morning, it became apparent that many technical factors are beginning to align that may give the bulls some room to run. The “Drudge Indicator” is flashing, and the general population has a suddenly expansive knowledge and understanding of the oil economy and its underlying supply and demand trends. As any family member can tell you over the holidays, Saudi Arabia will continue to flood the market until all others have gone bankrupt, and oil will of course trade down to the $20’s. Right. We all know how things like this tend to play out once the direction is “absolute” and “clear”.

The three charts below of WTIC (spot price of light crude oil), USO (oil ETF) and UCO (2x oil ETF) all show the same thing. Not a surprise, since they’re based on the same underlying asset. But it’s important to review them individually for clues. What you’ll see is the following. The volume has absolutely skyrocketed during 2015 and shares have formed a falling wedge pattern (generally bullish, as new lows become less and less pronounced). And that comes while price is showing massive positive divergence from RSI and MACD. What that means is that price is forming lower lows while the technical momentum indicators are forming higher lows. The downward momentum is slowing. This, along with the massive volume into the lows, may be a sign of some serious accumulation by the largest institutional investors into the asset class.

UCO (ProShares Ultra Crude Oil)


USO (US Oil Fund)


WTIC (Spot Price of Light Crude Oil)


Apple: A Positive Shift in Sentiment

October 28, 2015

Apple reported a solid quarter and provided guidance that was slightly ahead of our expectations (you can check out our pre-earnings expectations here). The most important pieces of the report weren’t provided in writing, but rather gathered from Tim Cook’s comments on the conference call.


  • iPhone. Missed our estimates on the unit count, but ASP was well ahead of our expectations. Overall, revenue came in just 0.7% below our projection. We don’t see this as a negative; instead, we view it as Apple management shifting sales into the much tougher comp – the December quarter.
  • Macs. Our revenue projection was within 1.0% of the actuals, with units very slightly below our estimates, but ASP making up much of the difference.
  • iPad. This was the most meaningful departure from our estimates. Not only did they sell nearly 400,000 more iPads than we expected, but the ASP was also $23 higher than we expected.
  • Apple Watch. We were way too optimistic about the growth in the Apple Watch. Based on our estimates, Apple sold 3.6 million units, well below our 5.0 million projection. This growth rate looks very similar to the iPad after its introduction. We had expected higher growth since the iPhone installed base is so much larger now. Therefore, we’ll be reducing our estimates for Fiscal 2016.
  • Revenues. Overall, revenues came in 1.3% ($692,000) below our estimate. This can almost fully be attributed to the lower than expected Watch sales (1.4 million units x $450 ASP = $624 million).
  • EPS. We had projected $1.98 in EPS, just $0.02 above the actual.

Overall, we were ranked #12 of 33 analysts, both independent and professional, by Philip Elmer-Dewitt (here).

Guidance and Revised Estimates for Q1. Apple management guided to a mid-point of $76.5 billion for the December quarter. This is slightly above our $76.0 billion expectation. They set the low-point over $1 billion higher than last year’s actuals, deafening the crowd that was calling – not only for zero growth – but for negative growth. Tim Cook was also explicit when he said that iPhone revenues would be up, and so too would iPhone unit sales. It would not be a “trick” generated simply by higher ASP’s. It’s more unit sales. He was also clear about his view toward China. There has been no slowdown for Apple.

  • Macs. We’re bringing our estimates down from 5.80 million units to 5.75 million.
  • iPads. We’ll be raising our iPad estimates to 15.5 million units from 14.5 million units, due to the higher sales in Q4, the iPad Pro introduction, and increasing confidence in this category into the holidays.
  • Watch. We were disappointed by the numbers in Q4 and will be decreasing our estimate from 7.5 million down to 6.5 million. This is very similar to the iPad launch. In its second quarter, it gained 900,000 sales over the prior quarter (same as Apple Watch). In the next quarter, which was the Holiday quarter, it generated an additional 3.0 million sales.
  • iPhone. We’ve had our estimates at 82.5 million units and have decided to leave it as is.
  • Revenues. Based on these estimates, we’ve projected $79.9 billion in revenues. This equates to a 4.5% beat vs. the guidance mid-point. We feel very comfortable with this.
  • EPS. These estimates lead to an EPS of $3.48. This would equate to an LTM EPS of $9.62.

Fiscal Year 2016. We’re currently estimating FY2016 revenues at $255 billion with $10.63 EPS. Many investors are concerned that Apple can’t beat the “tough comps” coming up over the next few quarters. On the call yesterday, Tim Cook mentioned a single word several times: “subscription”. He views the iPhone as a subscription business, and so do we. The annual upgrade plan even more so, as well as the future roll-out of carrier billing via Apple. The growth in China continues to be more than robust and nearly 70% of the iPhone installed base has not yet upgraded to a 6/6s device. The negative foreign exchange headwinds will also decrease substantially after 1Q 2016.


Apple’s post-earnings reaction was very muted. The after-hours action was essentially nill. This morning, shares traded up slightly, and rallied slowly throughout the entire day. Shares are now sitting at the highest level since mid-August, over two and a half months. They ended the day near a critical make-it-or-break-it level, as you will see below. It certainly looks bullish, but keep in mind that we’ve got to get back above the $120 and 200dma level – and do so quickly to keep the momentum in a positive direction.

Inverted Head and Shoulders. Shares of Apple closed today just above the highs from last Friday, and at the highest level since mid-August. There’s a lot in the chart below. First, the inverted head and shoulders below is clear. It has technically broken the neckline ($117.50), and has a price target of $142. We love it when multiple pieces within a chart fit and work together. Interestingly, the Fibonacci extension levels all correspond exactly with very significant resistance levels. As you can see, each of them lines up – the 38.2% with the bottom of the post earnings gap, the 50% with the top of the gap, and the 61.8% with the all-time highs.

Additionally, the RSI has broken out of its downtrend and successfully tested it on the breakout. And the MACD is very bullish, starting from low levels and has room to run. Lastly, the 200dma is *still* rising, as surprising as it may be, and the 50dma is no longer falling.


Post-Earnings MACD. The MACD has risen into each of the five earnings announcements shown below. In two prior examples, the MACD continued to be bullish after earnings. In those two cases, shares continued to rally in a very significant way for many weeks after the report. In the other two examples, the MACD turned down immediately after earnings and acted weak all quarter. We see the MACD after yesterdays earnings continuing to act very strongly. That bodes well for the quarter.

AAPL MACD on Earnings

The Trend is Your Friend. An uptrend is defined as creating higher highs and higher lows. You can see that in the chart below. In mid-September, Apple created a higher low. In the past couple of weeks, it created a higher high than early September. Shares are back in an established uptrend.

AAPL Trend

IMPORTANT LONG-TERM CHART. The weekly chart below includes the 25 exponential moving average (EMA). We view that as a crucial long-term chart, since it has acted as support during uptrends and resistance during corrections. You’ll notice that we shaded each period of time during which shares saw a meaningful correction (well below a 50 RSI). After those periods, once the shares re-take the 25EMA, there has been a meaningful rally within just six weeks, and often continued for several more weeks or months. Additionally, upper Bollinger Band has been touched within 6-8 weeks each time.

Well, shares just broke through the 25EMA (as well as the 50 RSI level, which has been associated with the bull moves in the past). We can expect the 100% – 125% Bollinger Band level to be touched around the holidays. While that range currently sits at $130-$138, it will rise if price does.

AAPL Weekly EMA and BBand

Post-Earnings Bollinger Bands. Below, we illustrate each Apple earnings report. In those instances when Apple hits the upper BBand within the week of the announcement, we’ve shown it as a bold green line. You can see that during those quarters that quickly rose to the upper BBand, there was a quick and meaningful rally of approximately 20% in six weeks. In the one instance where it was below that level (11%), that’s because it hit the prior all-time highs, where it found resistance for a short period.

AAPL BBands Post-Earnings

NASDAQ (QQQ). The NASDAQ index is sitting at its all-time highs. Can you believe how quick that was?? It formed a pretty well-defined double bottom, which targets new highs near $119. We may see a gap fill down to the $110 level, or a re-test of the breakout point at $109. But the longer-term uptrend is still intact.


S&P500 (SPX). The SPX has retraced the large majority of its losses. It gapped back up above its 200dma, re-tested it, and has since lifted off. The markets are looking solid at this point.

SPX Daily

Long-Term Trend. The long-term trend continues to be up. SPX bounced off the trendline where it formed a double bottom, and has since broken out (target at 2170, roughly 4% above current levels).

SPX Weekly

Two Minute Drill

February 10, 2015

Want to quickly run through some charts we’re watching, many of which are actionable. In no particular order…

SPY (S&P500). After six weeks of consolidation between $199-$206, it is beginning to feel like the bulls are taking control. In this market, we often see an initial false move (either a false breakdown or breakout). But two false moves is less rationale. That’s because a false move is essentially an accumulation strategy by large investors. It allows them to sweep the stops that are in place. For instance, if they want to accumulate longs, they shake out traders who have sell stops in below the current range (i.e. the $198 level on Feb 1). What we labeled as “False Breakout” on February 6 was, instead, more likely an indication of the true move. We’re seeing follow through now.


SPY (S&P500 #2). Additionally, if you look at the daily SPY chart below, it’s clear that the bulls have actually been in control during this entire consolidation. It hasn’t felt like it… but price has remained above the 38.2% Fibonacci retacement level from the October lows to the December highs. That retracement level also happened to rest at the rising channel support level (funny how technicals tend to converge at certain support/resistance levels). Further, price finally broke above – and re-tested – the January downtrend line. Things seem to be turning around.


AAPL (Apple). As we detailed in our AAPL post yesterday, shares formed a relatively well-defined cup and handle pattern. Today, shares broke through and powered higher. Remember that shares may always re-test a significant support/resistance level. We wouldn’t be surprised to see shares revisit the $120 level and bounce higher. But we do expect that shares will be significantly higher in the coming weeks and 2-3 months.


IWC (Microcaps). The microcap index has formed a very nice inverted head and shoulders pattern. After an initial breakout that found resistance exactly at the 38.2% Fibonacci extension level, the IWC re-tested its breakout level and has largely held the $74-75 support. We do expect higher prices in the weeks and months ahead.


QQQ (Nasdaq). The QQQ’s have formed a ten week triangle consolidation pattern with very well-defined support at $99.50 and resistance found at the descending trend line. For the first time during those ten weeks, the index has peaked its head above the downtrend line. With the broader markets (SPY, IWC above) showing a bullish turn, we expect the QQQ to do the same.


TSLA (Tesla). We’ve written detailed posts explaining our bearish sentiments on TSLA. We went short at 220 in early January and covered in the low 190’s. Instead of short and hold, we’ve been opportunistically entering quick short trades. As shares re-tested the 200MA this past week, we re-entered that position with a stop above the MA.


TSLA (Tesla #2). Additional support for our bearish thesis is illustrated with the 40MA on the weekly chart. It’s clear that this is a significant moving average to watch – it defined the exact lows through 2013 and 2014; it also defined the exact resistance in December and again this last week. A close above this would negate our bearish thesis.


TWTR (Twitter). We took a small long position as shares reclaimed the 200MA the day of earnings. That was a signal that investors were showing their hand early. During the post-earnings rally, shares found resistance at the 61.8% Fibonacci retracement of the October high – December low. Today, TWTR found support at the 50% Fib level. We continue to hold our long position and will exit with a close below today’s low.


YHOO (Yahoo). Shares of Yahoo have gotten crushed since earnings. We had expected that the 38.2% Fib level would hold, but clearly it did not. Instead, the 61.8% Fib level was tested after earnings (and has since held). Depending on your view here, it might be a decent risk/reward. With the 200MA less than 2 points below current prices, there’s a lot of support in this zone. Just remember to have stops set.


FAS (Financial 3x Index). During the recent spike in volatility, financials were hit hard. The 3x financial bull index formed a double bottom with a neckline that sat directly at the 50MA. We love when these support/resistance levels converge, because it makes a breakout that much more meaningful. The target on this breakout just happens to coincide with the recent all-time highs at $132.50.


GM (General Motors). As we explained in a post before earnings, we entered bullish positions as shares broke above the $33.50 level. At that level, the 10, 50 and 200MA’s all converged. Clearly, a break above that level is a very meaningful. Funny how technicals often lead fundamentals. The earnings report was solid and shares spiked. We exited our position as it nears its $39 target. Might be time for a breather, but definitely not a short here.


GS (Goldman Sachs). Just like the financial index above, GS formed a double bottom at $172.50 and just broke above the neckline at $182.50. However, the 50MA sits 2 points above current prices, which may be resistance. If shares do break through the 50MA, we will likely enter intermediate-term positions. But the risk/reward is simply too high until it re-takes that resistance level.


GOOGL (Google). We wrote a detailed post on GOOGL and explained why shares were likely to find resistance at the $490 level. We exited two weeks later at $530 (50MA at the time). While shares did continue to the upside, we have to remember that we don’t need to catch the entire move. In fact, we should NOT try to catch the entire move. That level of greed leads to bad decisions. Know at what level it will be “enough”, that you’ll be proven right and that you’ll have a profit that you are happy with. Back to the charts… GOOGL has formed an inverted head and shoulders pattern. However, the 200MA sits just 10 points above the neckline, which makes for a tough decision. We’ll wait for the 200MA to be retaken before entering any other long positions.


GOOGL (Google #2). We posted the chart below as one piece of our bullish thesis on GOOGL while shares were sitting at the $490 level. It bounced off that level again. This is one to watch…


NFLX (Netflix). Shares of Netflix are forming a bull pennant after skyrocketing on a nice earnings report. This one could be headed to all-time highs. RSI has backed off overbought levels, leaving additional room to the upside.


Gap Ups and The Week Ahead

December 21, 2014 (7:00 pm)

I think it’s instructive to take a quick read through our last post from Tuesday night, entitled “Is Santa on His Way?“. We laid out our rationale for expecting a bottom to form around the SPY 198 level and to see a significant near-term bounce and rally into year-end. Just when it seemed the rest of the investing community got most fearful, we were adding near- and intermediate-term bullish positions expecting a strong run into year-end. The technical action led the way.

As a quick aside, I want to recommend two very informative articles written by Steve Burns (@SJosephBurns). Nice job on these, Steve… simple to follow and solid analysis.

S&P 500 (SPY) Strong Support. We’re going to spend a lot of time looking at SPY on a variety of time frames. Early in the week, we detailed the strong support illustrated in the SPY chart below (what had been $198 support is now $197 support post dividend). It hit that support level as well as the 30 RSI level and skyrocketed from there… 10 points in three days.


S&P 500 (SPY) Short-Term Double Bottom. On Wednesday night, the SPY was showing a potential double bottom and we tweeted out the chart below (which obviously didn’t include the Thurs/Fri action at that point). Was very surprised to see the 100% measured move hit just the following day, but clearly the shorts wanted out. We took profits on half our SPY position mid-day on Thursday as it hit the 61.8% Fib extension level… whoops. Should have waited to be stopped out instead. But we need to remind ourselves from time to time, “I made all my money by selling too early”. The SPY has since hit its dividend-adjusted all time high.


S&P 500 (SPY) – October Comparison. The chart below simplifies itself the longer you analyze it. The first piece to note is the consistency in the RSI action… lows around 30 followed by highs around 70. That is a signal to us that the SPY has further to run. The second piece is the MACD action at the bottom. While we haven’t yet seen the MACD cross, it is likely coming. Over the last few months, this has signaled just the early stages of a multi-week rally.

The interesting comparison to October is based on those big gaps. It started with (1) a break through resistance, signified by the 200MA in October and the 50MA in December. The following day, a large gap was created as bears wanted out and bulls had no reason to sell. After the gap was created, the SPY consolidated at the next resistance level (2), which was the 50MA in October and the ATH in December. Just to continue the comparison, if action mimics the October rally, shares will consolidate for a short time before moving up to the top of that ridiculous bar formed on Thursday.


S&P 500 (SPY) – A Closer Look at October. There were three trends that were established throughout the October rally. The first was a strong uptrend (1), which brought the MACD up to an unsustainable level. We’ve seen the same action thus far in December. The second was a more moderate rally that lasted three weeks (2), and the last was a slight uptrend that solidified the negative divergence on the MACD and RSI. With the next two weeks being short holiday trading weeks, wouldn’t be surprised to see this recent rally moderate a bit… but we do expect the uptrend to continue.


VOLATILITY (VIX) Smash. The chart below has been a fantastic resource over the past several years. The 70 RSI level has acted as a signal that investor fear has reached capitulation levels, leading to a bottom in the equity markets. The VIX hasn’t simply pulled back after these events, it tends to absolutely crater back down to the 11-13 levels.


VOLATILITY (VIX) – October Comparison. The equity markets tend to bottom as VIX reaches “capitulation highs” (signified by the shaded areas below). As mentioned earlier, the VIX doesn’t simply decline, it falls off a cliff. In the near-term, the VIX has formed a descending triangle, which bodes well for a continuation equity market rally.


RUSSELL 2000 (IWM) – Breakout. The IWM broke out (just barely) of its six month consolidation area. It also looks like an inverse head and shoulders has formed with the August and December lows. If this does hold the breakout point, a 100% measured move could move it +14 points (104 low / 118 neckline) through next spring.


RUSSELL 2000 (IWM) – Long-Term Perspective. As a follow-up to a chart we’ve posted many times, we’re at an important inflection point in the longer IWM time frame. Shares formed a very well-defined uptrend since 2009 that was breached by the recent October lows; IWM has been consolidating under this trend line ever since. If it’s able to continue to power through the $120 level, it will be very bullish. However, if it fails, we’re going to be very cautious entering any longer-term investment opportunities.


APPLE (AAPL) – Bullish Into Earnings. We’re bullish on AAPL into its January earnings. During the market lows last week, shares hit the bottom of a multi-month rising channel, which also happened to be the 50% Fib retracement level from its post-earnings rally. Further, it has broken out of a falling wedge (one of our favorite patterns) on strong volume. It just so happens that the top of the rising channel meets it’s ATH just prior to the earnings call. Who doesn’t enjoy coincidences in technical analysis…


APPLE (AAPL) – Another Look. This is a longer-term view of AAPL. As you can see, it has formed a well-defined, multi-year rising channel. The recent price action looks a lot like mid-Sept 2013. Shares hit the top of the channel with an 80+ RSI. It fell back to the 50MA, which it pierced for a matter of 2-3 days, and MACD fell below zero before it again trended higher. The recent breakout from the down trend is also visible here, with MACD turning up.


EXXON MOBIL (XOM) – Bear Trap. We explained in previous posts why we expected the massive XOM head and shoulders to be a bear trap. It has proven to be a profitable thesis thus far.


YAHOO (YHOO) – Bull Flag Breakout. Shares of YHOO recently broke out of a month-long bull flag. MACD is starting to turn up as well, and the RSI has a lot of room to run.


ALIBABA (BABA) – Bull Flag Breakout. Just as shares of YHOO are breaking out, it’s not totally surprising to see the true source of its value also breaking out. BABA has formed a well-defined falling channel / bear flag. It likely has a lot of room to run from here.


THE WEEKS AHEAD. We’d expect the market to continue up from here, since investors really don’t have much of a reason to sell here. Bears and those with short positions will continue to exit in order to harvest tax losses. Another melt-up has likely begun. That’s not to say that every day will be up. But the uptrend should continue. My own personal expectation is that the algo’s tipped their hand with the SPY 112 print… but that’s just one opinion (and we all know what happens to opinion’s in the equity markets).