The Morning Line

Anxiously Awaiting AAPL’s Verdict

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With the bull market in an apparent topping process, it will always be insightful to ponder Apple’s chart. It offers a window into the minds of money managers, many of whom have staked their careers on the uptrend of just one stock. Some of these guys would be sorely challenged to analyze a game of Chutes and Ladders.  Staying long in AAPL for the last 13 years, however, and robotically adding to positions the entire way up, has required no analytical skills whatsoever, only the hubris to believe the lucrative ride will last forever. But how much more growth can a company already valued at $3 trillion deliver?  This question was bound to trouble portfolio managers eventually, and it would appear that time is now.

The first thing to notice in the chart is that the stock recently failed to reach a compelling Hidden Pivot rally target at 187.93 that was flagged here more than a year ago.  It could still be achieved, although the weight of the topping pattern just beneath the target suggests the easy opportunity may be past. Under the best circumstances, chewing through the supply overhang would first require a consolidation at lower levels, then a confidence-building trek up a familiar slope that would take perhaps 4-6 months. This is by no means too much to hope for, but as my friend ‘Trader Mike’ Schurr always likes to remind me, hope is not a strategy.

Bitcoin, AAPL’s Cousin

I’ve included a chart of bitcoin that stretches back two years. Bitcoin is AAPL’s speculative cousin, the exuberantly irrational side of the bull market. It, too, appears to be in a topping pattern, which I’ve sketched speculatively as head-and-shoulders formation.  This is fanciful although not farfetched. AAPL arguably was forming a head-and-shoulders itself until last week’s plunge destroyed the would-be neckline. Even so, it’s possible to extrapolate a fall in the stock that would correspond to bitcoin’s implied head-and-shoulders plunge. It would bring Apple shares down to around $55.

None of this is chiseled and stone, of course. If AAPL and its canny handlers are going to prove me wrong, we should see evidence of this very soon in the form of a sharp reversal from either $160 or $156 that inflicts considerable pain and damage on bears. The former number represents a 50% correction of the run-up since October 8, the latter a 0.618 retracement. Such a rally would be startling, especially with the geopolitical world looking so similar to that of 1939, and with China’s real estate bubble beginning to implode. Ironically, the rise in T-Bond rates to a predicted 3% could forestall the deflationary endgame I’ve long predicted, giving the central bank room to loosen and a temporary respite to investors.

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$GCG22 – February Gold (Last:1831.80)

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$CLH22 – March Crude (Last:84.83)

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Whatever is pushing up quotes for crude, it’s scary to imagine.  Stocks have been acting as if they understand that the party is over. But energy prices? You’d think the global economy was about to embark on a boom so robust that it will somehow overcome the world’s hopelessly knotted supply chain. In actuality, the economy of the most important buyer of oil at the margin, China, is close to imploding, starting with a real estate bubble that could be the biggest ever. Is crude perhaps discounting a collapse in supply when Putin attacks Ukraine? Whatever the answer, and even if a bear market in stocks has begun, the March oil’s monthly chart implies that prices are on their way up to at least 105.08 this winter. Gas by then will be $6 a gallon, which, far from exacerbating inflation, is more likely to knock the economy on its ass.

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$ESH22 – March E-Mini S&P (Last:4381.50)

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$AAPL – Apple Computer (Last:162.34)

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The head-and-shoulders pattern that AAPL has traced out since Thanksgiving is so commanding at this point that there’s no point in using Hidden Pivot patterns to try to improve the forecast. The selloff will need to hit 158 or so to round out the pattern visually, with additional room all the way down to around 147 if bears mean to play for keeps.  We shouldn’t rule out the distant-longshot bet entirely, however. That would call for a sharp reversal from 160 or above that just keeps going. It would likely be telegraphed by a corrective abc rally that shreds past the d target. Whatever happens, AAPL continues to be an infallible bellwether for institutional mindset and ambition.

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$USH22 – March T-Bonds (Last:155^23)

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$SIH21 – March Silver (Last:24,320)

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Silver demolished an important Hidden Pivot resistance at 24.01 with such force on Friday that we shouldn’t hesitate to consider a far more ambitious target. The one shown at 40.12 is not even the most optimistic on the horizon; that lies at 53.06, the target of a pattern begun from 8.77 more than 13 years ago. We’ll be better able to judge the power behind the move when we’ve seen how it interacts with the smaller ABCD’s 30.76 midpoint pivot. Another lies at 32.35, and it is likely to be even more challenging, since it is the midpoint pivot of the much larger pattern. The lower midpoint is not in play yet, since it will require a rally to the green line (x=26.09) to lock in the recent low at 21.41 as the pattern’s point ‘C’; however, the big pattern has already done so.  In any event, and as you can see, both patterns exhibit very steep impulse legs pushing the rally. That is coiled power, and if it is unfelt now, it eventually will be.  It also portends bullish ‘mechanical’ set-ups throughout the bull market that are extremely likely to work. Stay tuned!

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$BRTI – CME Bitcoin Index (Last:36,506)

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BRTI triggered a ‘mechanical’ buy when it fell to the green line at $44,063 earlier this month. I didn’t recommend the trade however, because the ‘camouflage’ set-up we would have used to get long never ripened the way we prefer. Good ‘mechanical’ opportunities are supposed to feel scary at the time they are signaled, since the best of them usually features a plunge back to the green line that is meant to disembowel bulls who have bought C-D ‘follow-through’ legs too recklessly. This pattern surely qualifies as a hair-raiser, However, that in itself makes it theoretically appealing, even if not textbook perfect. The C-D leg died in the right place, but the imputed power of the A-B impulse leg was diminished by heavy choppiness near its top.  Even so, I’d rate the trade a ‘7.4’, well above the 7.0 threshold where we tend to go for it.  I see no reason at the moment to go for much of anything, however, since the ‘C’ low at $28,824 has by now become magnetic.

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$SIH22 – March Silver (Last:24.23)

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The bull trade explicitly detailed here as last week began could have produced a profit of as much as $9100 with relatively little stress.  And here’s more good news:  The tradeable pattern has continued to evolve into one that can probably be used successfully again. For starters, a pullback to the green line (x=22.46) would trigger a very appealing mechanical buy. This gambit will work best for those of you who are familiar with camouflage set-ups, since the straight-up risk from a conventional entry would be around  $10,000 on four contracts.  A short initiated at D=24.01 looks enticing as well, although the obviousness of the pattern could make it a tricky play. The target is a strong bet to be reached, given the way buyers impaled p=22.98 on the first time they came in contract with this ‘hidden’ resistance. ______ UPDATE (Jan 29, 10:50 p.m.): Buyers speared the 24.01 pivot we were using as a minimum upside target, foreshadowing a test of  November’s imposing peak at 25.40. A vast void separates the two levels on the chart, creating a a formidable discomfort zone for us to play with. Stay tuned to the chat room if you’re interested.

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$DXY – NYBOT Dollar Index (Last:95.64)

I am updating DXY not because it has done anything interesting since November, but just to have the U.S. dollar on my ‘new’ front page. It has been locked in a consolidation pattern since then, although the year ended with an imminent but not necessarily serious breakdown.  If the correction continues, it will allow me to switch to a more regular pattern instead of the fiercely gnarly one that has informed us the last month or so. Regardless, we can continue to use D=98.00 as a minimum upside objective for the bull cycle begun in May. It is part of a much larger, bull market that started in 2014.

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