The markets have continued to sell off without any let-up, so our lunar Green Period has ended with a 129 point loss on the Nasdaq.
That’s one of the weakest Green periods in a long time.
The implication is that the path of least resistance remains down, and we shouldn’t underestimate the possibility of even lower prices ahead, especially with a Red period now starting again.
Let’s have a look at the S&P 500 (click for larger image):
We have seen a race to the bottom ever since the major support line was broken a few weeks ago. There are going to be up days and rebound attempts, but really good support is not likely to be found before the 1320 level is reached. We may get there quickly (in the next week or two) or slowly (say, early 2013), it’s too early to tell.
Bottom line: I would remain cautious until we see more clear signs of a bottom.
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Some readers have been asking about my Earl proprietary indicators, and whether they also work for individual stocks. The answer is yes, and this week we will take Apple (AAPL) as our chart of the week (click for larger image):
Notice how major bottoms in the Earl2 have coincided very nicely with major buying opportunities in this stock. We are now in bottom territory again, but the Earl2 hasn’t turned up yet.
By last September, both the shorter term Earl and the longer term Earl2 were showing major bearish divergences (putting in lower tops while the stock continues to make new highs), indicating that a fall was imminent. This was one of the reasons why I warned on this blog that October could get ugly.
The $500 level is now going to become very important for Apple’s stock, because we see major trendline support in that area. Once the Earl2 turns upwards again, this stock will be an attractive buy and can go back up to $700.
But my hunch is that Apple will now continue to hover between $500 and $700 for at least a year or two.
A drop below $480 would be a strong signal to get out.
Good luck, Danny
LunaticTrader 