Don’t Load Up on Puts Quite Yet

We’ve been monitoring Apple shares closely because they look very likely to rise at least 10% above their current $220 price before bulls are spent. AAPL is a powerful engine for the bull market, and a big rally in the stock would all but ensure that the broad averages get dragged higher or at least remain buoyant. The chart shows another reason why it may be premature to bet against the aging bull market, even if some key numbers for the U.S. economy, including most recently consumer confidence, have begun to weaken.

Diverging Peaks

Notice how the stochastic ‘overbought’ peaks recorded at the bottom of the chart rose in tandem with the Dow’s price peaks. Together they effect a series of non-diverging tops, a formation that usually implies that the trend will continue.  Now notice how, when the stochastic peaks diverged relative to corresponding price peaks, the corrective moves that followed were steep and painful.

If you’re skeptical that the broad averages are capable of soaring to new highs with the global economy sinking fast, take a good look at the chart before you go aggressively against the flow.