Stock Market Technical Analysis Blog
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Following up from last night's blog where we were looking for AAPL to break out of its five week down channel today off a continued push from yesterday and the iPad mini release today. Unfortunately, in the early premarket session around 4am, AAPL and SPY both started selling down, which continued into a serious sell off when the regular session started. The problem in the premarket was that AAPL tried twice to break out of that channel (shown in middle cluster, top right chart) and failed both times causing it to sell down in to the open and then right after the open it slipped back down through the red 108 EMA line shown in the upper cluster, lower row, center chart. These two pivotal situations put AAPL into a spiral through the morning and when the iPad mini price was announced it was widely viewed as being somewhat overpriced and did nothing to help AAPL and AAPL's selling accelerated.
After the repeated attempts to reverse the stock market selling with weekly charts setups (shown in the upper cluster center row), which have failed, I feel like it is time to take a look at the bond market this evening. In the lower cluster above, I have two charts of the TLT (20 year bond ETF). The lower chart is a two year chart of the bonds showing its mother channel where the bonds have tested the lower line of the mother channel twice in the past two months and recovered both times. Also looking at the two year trendline chart we see that while all the blatant stock market propping was going on the past two months, the bond traders have been quietly building a huge symmetric triangle that I have shown with red lines. That triangle is tall enough to take the TLT to the upper channel line if it breaks up.
Next, looking at the chart just above it I have a weekly bars chart of the TLT bonds ETF where I have its two key moving averages applied. I need to stop and mention my moving average coloring system. I typically use a different set of moving averages for different stocks and indexes as I have found which ones work best for individual symbols. Nonetheless, I always use red for the smallest moving average and green for the larger moving average ( if i am using four EMAs then blue will be the next larger with pink the largest).
In that chart you can clearly see that when the red EMA gets on top of the green and starts pushing up the bond market roars for a couple of months as can be seen in Aug & Sept 2011 and Apr & May of 2012. During these same time periods that the bonds were having their two month rallies, the stock market had two month sell offs. Looking at the two EMAs now, we see that once again the red has been laying on top of the green for a few bars and has come to a tip ready to launch if we have any further weakness in the stock market. As usual though, if the tip of the red line slips down through the green from any surprise strength in the stock market it will be a technical breakdown in the bond chart and the TLT will fall.
Statistically, a large symmetric triangle sitting on the lower line of a multi year channel has an eighty percent success rate of breaking to the upside if it has an accompanying bullish moving average setup also. Looking at that triangle closely we can see there are still a number of days of bounce around room before an absolute pivot forces a direction breakout but realize that two thirds of all symmetric triangles break out before they get to the point.
In summary, the bond market has got the place all dressed up ready to invite stock traders over any day now. Everyone will be watching to see if the stock market proppers try another time or two to save the stock market from a big decline or if yesterday was their last effort in the face of the worst earnings outlook since 2001.
Alan
