Wednesday, January 28, 2015

When's the last time we saw the stock market sell off hard merely because of some punk earnings reports? It happened yesterday, but I have my doubts that the plunge reflects a fundamental change in the way those who are paid to throw money at stocks think. Earnings should have become irrelevant to Wall Street by now, and I therefore expect stocks to continue higher when this presumably fleeting funk ends.  Just how much higher is an interesting question, one that I've tried to answer in the current E-Mini S&P tout. Check it out if you want to be alert when the next promising opportunity to get short arises.

Yesterday's selloff, nasty as it seemed, was just the correction of a subtle, bullish impulse leg generated last Friday on the daily chart. Notice that the intraday high exceeded a peak made two weeks earlier by 0.50 points (two ticks).  It's a subtle impulse leg, to be sure, but it needn't have been any more obvious or robust to qualify the weakness of the last three days as merely corrective.  All of which implies that our longstanding target at 2105.00 is still very much in play. Its attainment would represent only a marginal new all-time high, but we'll short there aggressively anyway, since it is just the kind of place where bulls could get trapped worse than Gen. Custer.

Considering how weak the stock market and the dollar were yesterday, we should have expected more of a pop in gold.  Still, the direction was up, the rally was mildly impulsive on the hourly chart, and that is surely progress. The rally pattern shown is more than a little gnarly, but it looks sufficiently serviceable to allow a projection to 1327.60 over the near term. Of course, the futures will first have to get past the midpopint resistance at 1301.30, and with it an 'external' peak at 1299.20 that stymied bulls yesterday. My hunch is that once the futures have exceeded 1301.30 by as little as a point, the move to 1327.60 will progress swiftly.

The stock has taken a Whoopee Cushion bounce following an upbeat earnings announcement after the close ($3.06 per share, versus $2.59). We've been using 129.20 as an intermediate-term rally target, but the apex of this evening's hysteria has achieved only 116.46 thus far.  No doubt, the short squeeze would have gotten closer to the target if buyers were not bucking a bearish tide that saw the Dow Industrials down almost 400 points earlier in the day. Because Apple is the most valuable company in the world, we'll alway want to pay close attention to its ups and downs.  My hunch is that the entirely normal-looking correction of the last two months is over and that today's surge will lift the stock from consolidation mode toward 129.20. If that is in fact about to occur, it bodes well for the stock market as a whole. _______ UPDATE (February 17, 7:10 p.m.): An ex-dividend adjustment yesterday and a bad print at 129.45 may have compromised my strategy, which was based on a top precisely at 129.20. For now, and assuming subscribers did nothing, repair to the sidelines. If you bought puts anyway, they should be slightly profitable, since the stock finished toward the low end of its range. In that case, set a stop-loss that would pop you out of the trade for just a small loss. _______ UPDATE (February 18, 10:36 a.m.): The pattern that projected to 129.20, as I emphasized repeatedly, could not but produce a tradable top at that price. And so it has. I'll be interested to see how long it endures, however, and how deep the pullback is. If the stock soon comes roaring back, it will be going to 144.56, a target that I first broached in August. Were that to happen, the entire stock market