Apple Inc. (AAPL) Ambush In Play

AAPL has retraced back to ambush zone of the Fibonacci extension.  This support zone should see buyers step in for a bounce.  The negative divergence of the RSI to the last higher high suggests caution.  At this point, we don't know if AAPL will reach the next target of $770.00, but we have a good idea that it will get a bounce from support.  Failure of the ambush zone to hold as support would mean much lower prices going forward.

This morning AAPL announced the sale of 3 million ipad minis since it went on sale last week. The stock is higher in pre-market.

Technical Picture - $USDX Strength Weighs on Precious Metals and Commodities

Markets gapped up on strength overseas, but sellers quickly took control and the opening gap was faded. Not satisfied to simply fill the gap, the bears persisted, and helped along by a stronger $USD, sent prices all the way down to yesterday's gap support for tech and almost a full PD gap fill for the S&P. Small caps were hit even harder still. The only bright spot was the DOW, which managed to end the day on the plus side. Prices started to stabilize and bounce midday, and got a further boost from the FOMC minutes. However, late day price action became much more volatile and after hours, the bears are hard at work.

On the SPX chart above we note that open interest CPC is still too bullish and needs to correct. Today's stick not likely a hammer, more likely a hanging man, but that needs to be confirmed.

Note that the VIX, which has gone virtually ignored for months, is forming a bottoming pattern which looks like a mini inverse H&S.

Yesterday, the dollar held support and today it bounced, holding most of its gains into the close.

Dollar strength meant pressure on commodities and precious metals. Crude carved out a bearish evening star reversal pattern over the last three sessions.

Distribution in gold and silver. Look for more downside if the $USD strengthens. On the SLV chart we see multiple waves of RSI divergence to higher prices. This time I think we will see a deeper correction.

I still have a core swing short position in SLW which I was very tempted to cover at $36.00, but I believe it's going lower, so I'm holding on.

Coal technicals are still strong, but we have a bearish island reversal waiting to happen. Watch the futures in pre-market.

Semis are holding up well, but a correction would be healthy here given the steepness of the trendline.
MOO has already corrected, so I'm expecting a retest of the base. World food shortages are still problematic, and I expect Ags to be one of the leading sectors in 2011.

Commodity Rotation Cycle - In a commodity bull market, precious metals are the first to rally, followed by other metals, agriculture is third and oil is usually the last rally in the cycle. That said, it stands to reason, that precious metals will be the first to correct. Just a thought from a non-expert.

Bearish Hanging Man Reversal Pattern

Following last night's trading post, we had some interesting questions on the correct timing and entry of the bearish hanging man candlestick reversal pattern.

Let's go over Steve Nison's criteria:

We recognize both the hammer and hanging man (HM) from:

• the real body is at the upper end of the stick's range;
• the lower shadow should be at least twice the length of the real body;
• No or very tiny upper shadow.
• The longer the lower shadow, the shorter the upper shadow and the narrower the body, the more meaningful the pattern.
• In terms of stating the obvious, when used as reversal patterns, the hammer would come after a decline and the HM after a rally.
  

My notes - this second last point is a problem when it comes to stops, that's why I don't like to trade off of a wide HM or hammer. I usually wait for a lower risk entry point. I also prefer my hammers to be green and my HM to be red, but Nison says color is less important.

Confirmation of HM:

Nison says that at a minimum we need a lower open on the following stick, below the real body of the HM, but he usually recommends a close beneath the HM.

He also mentions that the pace of the rally should be slackening. The best way to determine this intraday is with the RSI which measures relative strength.


On the POT trade yesterday, which carved out 2 HM, the first of which was foreshadowing a reversal, we clearly see a negative divergence of the RSI to higher prices relative to the previous session.

On the FWLT chart, also from yesterday, we see the continued strength in the RSI when price prints a HM early in the session. This would not have been a good candidate to short following HM because the rally has yet to show signs of slackening.

The RIMM chart from today, shows 2 HM after a retracement. The RSI is clearly not enthused by the higher prices and this sets up a perfect short. If you use volume as the indicator, the entire retracement took place on declining volume.