Will Apple take a bite out of the market? AAPL is now up 161 weeks to this rally off its 2009 bottom. Last week, it violated bigger Gann symmetry but it is still at risk for a drop which helped the market because the kind of Gann symmetry violated was a price and time relationship that took 9 years to develop. It’s the same thing with the rest of the market.
We had a lot of longer term price and time squaring going on not only in Apple but elsewhere. Those relationships are now violated. What that means is we were at risk for a major longer term top but markets elected not in turn in those windows. But now we are at the back end of an 89/90 day time window off the October low and if we do get the pullback based on this calculation the higher probability is a turn of smaller degree.
How much smaller? That’s impossible to know but it would be smaller than an absolute reversal and potential end to this bull market. I’ve seen a lot of bearish reports out there from people who think we are still in a secular bear market. I won’t mention names but you’ve seen a bunch of technicians and well known stock market forecasters come out in the past 3 weeks calling for big drops in the market on specific days and none of this has materialized.
There is a chance it hasn’t materialized because very few people are considering the fact we could be in a new secular bull market. Don’t be confused, we started a new secular bull market in January 1975 but real prosperity and consistent gains did not kick in until 1982. But after the 74-75 bottom the market never went lower. The early stages of a long term bull would be characterized by the denial of its existence. But as of next month, this market is up 3 years and if we consider the NDX, over 3 years. Folks, that’s not some bear market rally anymore. Yes, it could be a cyclical bull in a secular bear but many of the longer term index charts like tech, the SPX and even the DAX have the price action sitting outside a longer term secular bear pitchfork.
In fact, if we look at European woes and look to the DAX as a judge we have a pattern that has been out of the bearish channel since October 2010 with the exception of one singular month last year. If we look to a bullish pitchfork channel that utilizes an anchor from the 2003 bottom and the length of the 2007-09 periods, we find ourselves in a bull channel that has held one time. This is not enough to confirm a secular bull. We would need the next retest to hold the rising channel. If we do get the pullback on this next sequence and the channel line holds the market will have confirmed a very long term channel line and would then be set up to go much higher. Let me be sure you understand what I’m saying. We are not there yet but the potential for a long term bull market may be setting up. If I have to pour cold water on the DAX it’s the fact it’s not confirming new highs we see in US markets. But by far the most important technical event of the year for this chart would be a test of the rising channel line.
If you look at the recent psychology of the market, even as some sentiment readings are as high as they’ve been in years, there is not nearly the kind of bullish participation we get at the end of bull markets. Statistics can be misleading. We are only 3 months removed from the MF Global disaster and that kind of event is much more representative of a long term bottom as opposed to being 3 months off a long term top. As you know, my take has been the market was setting itself up for trouble by virtue of the fact the VIX dropped as the market dropped in the weeks leading up to Christmas. I told you at that time the market had enough fuel to get to 2011 highs but probably not much more unless it started compensating for the drop. We saw some of that last week. On Monday the VIX bottomed out at 16.11 (good symmetry in itself) and by the end of the week hit a high of 21.98. The weekly SPX bar was almost a perfect doji which means we are at the same price level as a week ago but from the low to the close the VIX is 29% higher. It doesn’t make up for the December period but if this rally wanted to extend it has somewhat recalibrated and bought itself some more time. Hypothetically, the SPX could end up 30 points higher still by the time the VIX gets down to 16 again.
All of this talk of a secular bull market shouldn’t be confused with the idea I think the market is overdue for a bigger correction. Where I differ from some of the more bearish forecasts you’ve heard about is the fact I don’t think we are going back to the 2008-09 bottom anytime soon. The reason I believe this is the 21 year cycle low we’ve discussed a million times in this space. I believe I’m one of the few outposts anywhere in the industry who has presented this data. From what I’ve seen even in the worst of times we have a market that bends but doesn’t break. We have a market that gets unbelievable fearful incredibly fast. What many people don’t realize are true secular bears do not behave that way.
Next page: Clues to the data
All you need to do is look at the 2007-09 sequence. The early phase was characterized by denial as the media and market participants both felt the economy was only hitting a soft patch or coming in for a soft landing in 2007. It took a whole year for everyone to agree the subprime mess was not contained and you know the rest. Last year we went from soft patch to debt ceiling spectacle to European Lehman moment in a mere 6 months. By November we were reading the economy was in A DEPRESSION. This is only 11 weeks ago. By the way, we never heard the D word in the 2007-09 sequence. It was a Great Recession. Right now we are experiencing the next phase of the Greek crisis and if I can go out of character for a minute my heart goes out to those people. I don’t know how they do it. But in our work we still have worries that the EU can have the Lehman moment and as long as that kind of psychology sticks, I think there is a floor on any pullback. Don’t get me wrong, I think we can have a major shake of the tree but I also think that the way the market is configured fear would rise quickly and keep it from creating long term technical damage to the charts.
Getting back to Apple, it’s extended, it’s due and while it hasn’t turned the risk is elevated. If the market loses this kind of leadership it more than likely won’t survive without it. Without sounding like a broken record because I’ve talked about this for the last 3 weeks, I think risk is elevated and we are vulnerable for a correction this week.
Briefly, our weekend update is getting a fresh coat of paint and we are taking out a few redundant charts and introducing coverage of European markets. You can also follow me on Twitter @jeffgreenblatt.
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Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.