Sunday, November 18, 2012

Is The Bottom In?

In last week's post, Predicting How Low The Market Will Go, I gave my target for the correction using proprietary technical analysis (shown on the first chart). The market is in range with my correction target. What I expect is that markets bounce from this area (which may happen as early as Monday). However, one warning: if we go back down again, I don't think this area will hold again, and if that is true, we are in for a very ugly bear market. In the post below I will discuss if we finally put in a bottom and what to look for going further, and if this is just a bounce or the return of the uptrend. Finally, I will also discuss Apple, as it is very important to the markets; I believe it has reached an intermediate bottom that will be able to lift the markets in the coming weeks. I will also give my bounce target.

sp500 market correction target

The chart below is the ratio of new highs vs. new lows.  Note the red horizontal line; when the new highs vs. new lows reaches that area, it usually marks a bottom. For now, based on this chart, we are near an intermediate bottom, assuming the bull market will continue.

The chart below is the McClellan Oscillator. Right now it has reached a very oversold condition. The markets are due for a bounce, but this is where it gets tricky. If this bounce is just there to relieve the oversold condition, expect the oscillator to rally above 0 for a few days and just go back down. This pattern happened in May's and June's correction, where the oscillator went above 0 for a few days but then the market made a lower low after the bulls failed. If the markets are done correcting, then look for a complex structure above 0 (when the oscillator spends a lot of time above 0 showing that the bulls are in charge).

$NYMO mclellan oscillator

The last chart is Apple's. Apple has led the markets down and I think it will lead the markets upward in this bounce. I think Apple has finally bottomed, at least for the intermediate term. This is based on proprietary technical analysis, which I tweeted about on Thursday: for the 515 area to be where Apple will bounce. To further support my analysis: note the candle stick on Friday, a very beautiful hammer (hinting at a reversal of the trend), along with very impressive up-volume. I believe Apple will bounce at least to fill the gap at $580. The RSI shows a lot of damage has been done to this chart so beware thinking we will visit previous highs. I wouldn't be surprised in the future if it fills the gaps in the $400 area, so be careful. Remember fundamentals do not support the prices we have assigned to this market, as Europe is in a recession and the US markets may enter one as well.

Apple correction stock chart target bounce technical analysis