Shares of Apple (AAPL) rallied on Tuesday, closing near their highs and forming a bullish engulfing candle that encompassed the range of the previous four sessions. They look poised to move higher and should see follow-through strength this week, but the stock is getting overbought. It is a good time to look at where the current levels of support are, and the next level of potential resistance could be using the daily and weekly charts. Here’s a link to my article posted on Thestreet.com this morning.
The SPDR S&P Bank ETF (KBE) is retesting the lower end of the narrow horizontal channel it has been moving in for the last month. While the price range as contracted the recently, the percentage difference between the 50 day moving average and the 200 day moving average is at its largest spread since the introduction of the fund.
A pullback that would see these two averages revert seems logical and that could be initiated by a lower candle close that takes out the channel support line. Chaikin money flow dropped below its 21 period average as the pattern was first forming and has continued to decline, and positive price momentum, as reflected in the relative strength index, is fading and crossing below its centerline. The reading on the Bollinger bandwidth indicator suggests that a breakdown could be volatile, and the pattern projects a downside price target that would be penetrate the 50 day moving average.
Famed market technician, Tom DeMark says a market reversal is imminent: “We’ve been confident the last three weeks we would not break 20,000,” DeMark said in an interview on Bloomberg Television. “I assume there’s a possibility intraday we could, but it’s so unanimous, it’s almost as if the election were being replayed within the market. Everyone’s confident the market’s going to break 20,000. If it does break, it may go quite a bit higher. But I don’t think it’s going to happen.”
Video from TheStreet.com this morning:
The sharp drop in yesterday’s session took the price of crude oil back down to retest the neckline of a multi-year inverse head and shoulders pattern on the weekly chart.
It also helped to reverse the upward bounce last week off a channel consolidation low on the Schlumberger (SLB) daily chart. The channel top is defined by three previous highs and a breakdown below support would confirm a triple top, and a coordinated failure on multiple timeframes.
There is a divergence underway between the small cap stocks and the S&P 500, DJIA, and the NASDAQ Composite indices. The broader market indices briefly dipped below horizontal support lines last month and then bounced, moving back above those levels and advancing higher in the case of the NASDAQ and the S&P, while the DOW has been relatively flat.
The iShares Russell 2000 ETF (IWM), however, held its support line last month but more recently has moved back down to retest that level, closing on Monday just above and near the low of the session. The relative strength index and MacD indicator have been in bearish divergence to the fund price and the accumulation/distribution line is below its signal average and Chaikin money flow is well into negative territory.
Anecdotally, the small cap sector has led the broader market and, at least on a performance basis, that seems to have been the case going back to just after the dot.com bubble burst. A break below current channel support on the IWM could be a precursor to a broader market decline.