Thursday’s post close selloff in $AAPL likely jump-started the pullback that could last into early November. Factors such as near-term overbought conditions on intra-day charts, and the sudden deterioration in large-cap Technology look important just as S&P futures reached the 38.2% retracement of its August-October decline. Moreover, this period in late October was thought to be significant as a temporary stopping ground for rallies based on a couple short-term cycles I track. Yet, the vast improvement in sector strength, Small-cap participation as well as bullish mid-term seasonality and similarity to 1962 could all make any decline prove short-lived before further strength into December. Overall, two areas look important as possible support outside of this initial downtrend which held the post market plunge late Thursday: First, 3735, and second a zone of support at 3650-75, with 3675 being a prominent Gann target based on the 10/25 high close. Bottom line, dips will be buyable provided 3650 is not breached. Under that level, while an alternate scenario, would postpone any rally and allow for a possible retest of lows. However, even in this case, I expect that markets should likely bottom out by early November.
Small-caps have broken five-year downtrends vs QQQ
Interestingly enough, Small-caps have turned up quite sharply at a time when Treasuries have begun their modest rally. Yields pulling back under 3.95% has coincided with a big breakout of a lengthy downtrend in ratio charts of the Russell 2000 ETF ($IWM) vs. NASDAQ 100 ETF ($QQQ).
This is thought to be constructive towards overweighting Small-caps, and some of this ratio outperformance is the underperformance by Large-Cap Technology itself, as recent Earnings whiffs by $AMZN, $META, $GOOGL, and $MSFT have caused some short-term deterioration in these names.
However, even during Thursday’s trading (10/27) , IWM was higher on the day, while QQQ finished down nearly 2%.
In the bigger scheme of things, I view a Small-cap rally to prove short-lived and should find stronger 15-year resistance in the month of December on further outperformance. Bottom line, this recent surge in relative strength from Small-caps should be viewed positively, and combining this with the better performance in groups like Financials, Industrials, and Healthcare in the last week make pullbacks attractive to consider buying into as the market enters November.
AAPL should offer attractive opportunities for those looking on weakness into next week
I last discussed AAPL back on September 30th, suggesting that weakness should hold the $135-$138 area before turning back higher. The stock bottomed with the market on 10/13 on an intra-day basis at $134.37 before pushing higher to $152.49 as of 10/25/22 close.
Overall, this stock remains quite attractive compared to most large-Cap Technology names. As daily charts show below, AAPL remains well over June lows and above early October lows, even after the after-hours selling on Thursday.
Furthermore, technical progress occurred in October when the stock successfully broke out above its two-month downtrend. This helped momentum gauges like MACD to make bullish crossovers.
Bottom line, while markets might weaken a bit on Tech woes into next week, I would consider AAPL down near support at $140-2, and below that, $135 might come into play again. Until/unless 135 is broken, I don’t see much fault with trying to own AAPL on weakness. However, while not expected, any break of $135 on a close likely would cause a temporary retest of June lows. However, this remains an overweight among its peers and insufficient weakness has been seen to avoid AAPL.
AMZN looks to be attractive following its pullback to the mid-$90’s
Interestingly enough, $AMZN’s post close after-hours decline on Thursday looks to have brought this stock down to an attractive level of support.
Weekly charts from Marketsmith from Investors Business Daily show the intermediate-term deterioration in AMZN which largely occurred in April 22 into May as the stock broke multi-year uptrends on logarithmic charts.
At a price near $94, however, this represents a long-term area of meaningful support based on a 50% absolute and relative retracement for AMZN. These levels normally can prove quite strong in providing support on weakness.
Additional reasons for finding this area attractive deals with a few Fibonacci alternative extension retracements which seem to come together near $93-94. First, the decline from August 2022 peaks, when comparing this to the November 2021 through May 2022 decline, shows a perfect 61.8% alternative Fibonacci retracement down near $93.50.
Furthermore, when just comparing this latest two-month decline from August to the pullback from late March into May, we see that a 78.6% Fibonacci retracement also hits in this same zone.
Normally, wave structure suggests that open gap downs normally do not end up as lows to a decline. Typically a post pullback bounce occurs before a final decline. However, despite the intermediate-term bearishness in this chart right now, I don’t mind considering AMZN once it reaches the $93-$94 zone as a long-term buy and hold.