Equities bounced strongly last week, but that was almost entirely wiped out on Friday. If support in the 1425 SPX area is lost next week, I would expect more downside into the support in the 1385-1400 area. We are also seeing a retracement on gold and silver, and I’m expecting more there as well.
The US Dollar (USD) went from being technically strong before the run up into the QE Infinity (QEX) announcement to being technically weak. Quantitative easing (QE) is essentially devaluation, and USD moved down strongly during both QE1 and QE2. After QE-Infinity was announced, USD broke strongly below rising support from the 2011 lows and the 200-day moving average (dma). It made a low precisely at the May 2012 low. It has bounced into declining resistance from its high, tested twice so far, and is forming a bear flag and a possible H&S pattern.
This setup may not play out, but on a break below the H&S neckline, the pattern target is at 73.1, effectively a test of the 2011 lows, a move that would likely play out into spring 2013. Alternatively, a strong declining resistance trendline from the high could break. USD would need to recover over the 200 dma at 80.67 and hold above it for the setup to start to look bullish again. That would establish a new bullish rising channel:
AAPL is starting to look interesting as a long again. On the daily chart, the 100 dma broke at the second test on Friday, the H&S target is in the 590-600 area, and the main target is a test of the 200 dma in the 580 area. A good entry would in the 580-5 area. In a bullish scenario, there would be a strong reversal back up from there.
On the long term AAPL chart, there are five previous retracements in the last 20 years on strongly negative weekly RSI divergence like this retracement. While the last retracement was about 15%, the next smallest retracement was 42% in 2006. (Long term AAPL chart is here.)
AAPL may fall further. There are two possible H&S necklines below in the 567 and 520 areas. I favor the higher 567 area neckline as it fits with a drop into long term rising channel support on the log scale chart around 400. On a bounce from the 520 or 567 areas, I would be looking to exit in the 600-640 range:
As long as AAPL holds its 200 dma area, it could be a straight long play from major support (around 580). Apple Inc. is a company with a great market position and an unusually low historic P/E ratio in the 14 area. Sabrient rates it a strong buy – read the Sabrient report here.