I don't get to sleep much at night, thanks to my sleep disorder. So, I get to think instead. Often times, about charts. I make up for my sleep deficit during daytime while sitting up in my chair. This crap has been going on for almost two years. But that's beside the point.
Last night, the subject was AAPL; I wanted to make sense out of the recent action, given that I'm still of the opinion its bear market has yet to run its course. A couple of weeks prior to the earnings release, I published chart 1 below, calling for an upside target of ~101. And then chart 2 followed, suggesting further upside towards 109.78ish.
Chart 1 - An inverse HS indicating a measured move of ~101.
Chart 2 - A Bearish BAT targeting the ~109.78 area.
No sooner was the 101 target hit than the selling began! Four consecutive red days reclaimed almost 50 percent of the most recent up move since June 27th. That, in my eyes, constituted a potential Double Top in the vicinity of 101, and hence an opportunity for the bear market to resume. To be clear, 101 isn't some random price level; If you recall, the prior up move, which began on May 12th, faded on June 26th at 100.73. Why? Because the 2012 bull market high was 100.72, and a line in the sand had been drawn there for quite some time.
The Post-Earnings Action
I posted chart 3 below just yesterday, emphasizing the significance of the recent price action. On August 1st, price broke through the supply line drawn across the 11/4/2015 and the 4/14/2016 swing highs. But the sellers responded back commensurately on the very next day. The ensuing session on August 3rd was telling; an inside day reflecting indecision, which also qualified as a '5 percent day'. (A session qualifies as a '5 percent day' when the entire day's session is established during the first 60 minutes of trading). That day's range was [104.77 - 105.84]. When price breaks out of the 5 percent day's range, upward or downward, a trader is supposed to go along for the ride, not fight it.
The August 4th session (yesterday) reached a high of 106 and then closed at 105.87. It looks like the bearish BAT in chart 2 is headed towards its objective.
Chart 3. A bullish breakthrough, a selling reaction, and then indecision.
Resistance Near 106
Really? 106? Doesn't ring a bell. Well, it doesn't until you use some imagination. In chart 4 below, most of you might have forgotten the massive Head and Shoulders (yellow), whose head section happens to also be a Head and Shoulders (black). The latter had a price objective of approx. 105.15 (best effort), which was almost reached on August 21st (Friday), just one day prior to the August 24th (Monday) crash. Notwithstanding the unwarranted panicky move, I still drew the yellow neckline by placing an imaginary right armpit at 105.15 and around August 21st. To my amazement, the price action during the last three days have been butting heads with the underside of this presumed neckline. As for the blue bearish BAT, its intention is to once again test the waters just below the black neckline. The last time this happened (blue point X), it didn't fare well for the bulls.
Chart 4. The chart patterns in play.
Elliott Wave Theory in Agreement
Finally, I was curious to see whether an agreeable Elliott Wave Theory pattern has emerged as a result of this newfound clarity. Sure enough, it looks like this bear market is tracing out a Triple Zigzag pattern. Clearly, the third and final zigzag is underway; its final leg down should get going upon the bearish BAT reaching its impressively tight PRZ (Potential Reversal Zone) just below $110.
Peter Ghostine (@peterghostine)
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