AAPLTalk, 8/20/13 Market Close: Can Bulls Shrug Off a Potential Head & Shoulders Formation?

Now there’s the kind of bad pun-esque post titles I “like”.

Is there a head and shoulders in play in the first place?  As anyone who’s read a recent post knows by now, I make no claim of expertise.  So what does the 15-minute chart say?

aapl-15min-082013close

In my humble opinion, it’s a definite maybe. 😀  No, it’s not quite as  “classic” a H&S pattern as, say, GOOG’s recent H&S pattern, but you still have two essentially failed attempts at higher prices (the shoulders) on either side of the peak of the uptrend, which looks a bit like a breakout failure as AAPL was repelled short of 515 yesterday.  On the bright side, it’s on a micro timeframe, and it doesn’t indicate a catastrophic move downward on its own, not even close.

Just “for fun”, let’s assume an H&S is in play (light blue neckline).  Has it triggered yet?  If I had to guess  – and I remind you for the millionth time about my ramblings not even remotely resembling “trade-worthy opinion” – I’d say it’s starting to.  You’ll only know whether the H&S triggered in retrospect, but the early clues point to a measured move of around 10-12 points by my rudimentary calculations from the neckline (which, even if there is a trigger, doesn’t mean there will be retrace of that amount – price action has a “mind of its own” after all).  At most, there’s a break below of about three bucks or so.  You can of course measure a H&S neckline in more than one way, but the one that made the most sense to me has AAPL needing to hold slightly above 504 at the close.  AAPL closed around 501.

There’s also nearby levels and a few theoretical trendlines which seem to lean in favor of a micro (in both timeframe and relative severity) “breakdown” (which is simply the opposite of a breakout in my understanding).  In terms of levels, there was 504 (the start of yesterday’s gap up), and it didn’t hold.  It filled, but there was no lasting recovery.  The micro support of around 502 from before yesterday’s breakout also didn’t hold.  Now 500-ish did hold, but in my uneducated opinion you also have to look at it in context of the 485-505 airspace.  AAPL was holding above it the upper airspace border despite the selling pressure, but today, it’s back below it.  Not the end of the world.  But a potential sign of more downside short-term.

Three other bearish-seeming observations of note.  First, notice how I extended the pennant/triangle “trendlines”.  Obviously, price knows no artificial bounds, but assuming the usefulness of said lines in measuring composure, AAPL was “supposed to” break above the pennant/triangle and continue for more upside in a typical bullish breakout scenario.  It did for a time, but then failed, falling below both extended trendlines.  We’ll see if they proved to have indicative value over the next few trading sessions.

Second, you’ll recall the semi-cloned descending channel I mentioned yesterday.  The top purple trendline is a little high, but even when you adjust for it, you can see how AAPL, at best, is slightly below the lower purple trendline and not having any success finding its way back into the channel.  You can compare that to the actual descending channel that shows up in the hourly chart a bit later – suffice it to say that the early-August descending channel, while worrisome at times, had a textbook series of high and low trendline contacts.  When looking at multiple indicators and the price action itself (all the red bars), it sure looks to me that the “second” channel is off to a much weaker start, if there’s a valid channel at all.

Finally, note the volatility crush resolution on the 15-min BBs.  Doesn’t look all that great at all, does it?  See also yesterday’s resolution.

Blend it all together, with a dash of potential bear flag formation even if you don’t see a H&S, and much weaker readings on the fast stochastics-esque Williams oscillator (which is new as of the past two days at least) and the only objective conclusion I can draw is that the 15-min is hinting at more downside tomorrow.  It can’t predict – but the readings as of market close just weren’t good for bulls.

But that’s just the one timeframe.  How about the hourly?

aapl-hourly-082013close

…yup.  Similarly not great.  Here you can directly compare the early August descending channel with the theoretical pacing channel I drew in yesterday.  Note MACD-h going negative in a more pronounced fashion than in early August (which makes some sense given the magnitude of the move from 453ish, as supercharged by Icahn).  Note also the BBs initially resolving powerfully to the upside, then AAPL being forcefully reined in, and now trading below the BBs’ mid-channel.  If AAPL had simply been coiling and consolidating the past few days, rather than breaking out to 513ish, the read would likely be different.  But AAPL’s meeting with sudden weakness at those upper levels, in my humble opinion, makes for a different analysis.  As always, you may well think differently.  And who knows, there may be a trade-able bounce tomorrow.  Meanwhile, I can only interpret my humble charts in my own humble way.  It’s no fun to not have “predictions” or commentary of some kind, and hey, maybe I’m feeling a little more confident on account of my micro bearish thesis for today proving net correct.  Don’t worry, I doubt I’ll be “right” all that often.

Finally, for perspective, the daily chart.

aapl-daily-082013close

That bearish engulfing candle isn’t pretty, and it’s a textbook example of its type, with a decent intraday range of over a dozen points.  In this timeframe, the bull flag theory is still very, very much in play, and in terms of trendlines and moving averages, AAPL is still hovering over all of them.  (The EMA-8 for example now stands at about 492, up from 489ish yesterday.)  But even if an AAPL optimist tried to whistle past the bear cave, that potent candle probably shouldn’t be dismissed out of hand at the very least.  And a return to the EMA-8 or the accelerated trendline at a minimum?  Might not be a bad thing.  After all, the current 23.6% retrace of the move from 388.1 stands at 484ish, so the “overall health” of the current uptrend remains quite robust, even as the MACD-h trails off a bit.  A little over a dozen points from the uptrend highs is no nightmare scenario.  But is today a good time to take notice?  I say sure, why not?

And since this post is getting quite long, I’ll wrap it up here for the day.  See you on the trading floor tomorrow, and best of luck.

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