MAIL QUESTION:

"What influeces you to get into or out of a trade these days? I was guessing down when the S&P got near 1600. I didnt see the up from 1540 though. Any thoughts on Apple here?"

MY RESPONSE:

When the Market gets overdone on the upside after a prolonged run, volatility follows and we just saw a quick 60 point dip in the S&P 500.

Often we see a final rise into a tradable top that is accompanied by a Relative Strength Index reading that doesn't carry to as high the prior RSI peak. That pattern is seen in my first chart, that of the S&P 500 (SPX). The jargon is the RSI didn't 'confirm' the new high in price; or, prices continued higher on LESS relative strength. All good in theory and in retrospect but these bearish type divergences at many significant tops go on and on. You know a correction is coming but you can't tell just when.

The best sign for me relating to a possible top in the 1600 area in S&P was that the Index got back up to resistance implied by the upper end of SPX's broad daily and hourly uptrend channels. The daily chart picture is first, followed by an hourly chart view.

The rebound from the 1540 area was from the lower end of the aforementioned uptrend channel in SPX. That the support (up) trendline 'acted as' technical support is clear on both daily and hourly charts.

A look at the hourly SPX chart along with RSI set to 21 as its 'length' setting is of interest in seeing the timing of recent trading swings in the S&P. Overbought/oversold readings on hourly index charts often mark junctures where at least a short-term reversal is due. I don't say the same for individual stock charts. Use of the 21-hour RSI works best in the aggregate that is a major Index.

My trader sentiment indicator (CPRATIO) seen below, got down to a bullish 1-day reading yesterday (Monday, 4/22/13) and was a secondary bullish omen for a continued rebound. First and foremost was the fact that buying lifting stocks in the area of the key S&P up trendlines. Paying attention to trendlines and redrawing them as necessary, can provide some of the most useful insights as to possible support-resistance and reversal points.

You asked about Apple (AAPL) and I view its weekly chart pattern as a bullish falling wedge formation. I think the stock is due for an upside breakout and possibly a substantial retracement of AAPL's freefall from the 700 area to 400. Even a modest retracement of that $300 decline could get the stock back up to the 500 area.

A related topic to the possible bullish implication of a bullish falling 'wedge' pattern: the stock may have made at least an interim low in the $400 area in that AAPL has completed a 50% retracement of the monster move from the early-2009 low around $80 to its 2012 top at $700. Retracements of about half of the previous advance is common in stocks. Often buying the 50% retracement carries a favorable trading risk to reward.


GOOD TRADING SUCCESS!