This Lone Wolf Befriends the Sheep

I'm accustomed to bucking the trend, going it alone, taking the less travelled path. I'm the kind of guy that shuns the drab of the highway, preferring to search out alternate routes, spy future destinations. I can't tell you how many times I've been in the car with my wife, arguing because I chose to take the "scenic route" home. But that's me. I'm always scouting for the unexpected, the undiscovered, the unnoticed.

Well, after peering around some, I see something in this market that a lot of other people don't seem to notice, and it's looking tasty. All I hear is misery and mire, and it ain't gonna get any better any time soon. I'm not buying it, heck, it should be tacit knowledge that the media has a stake in this kind of doom and gloom. That's what they sell. Of course there are those pesky dark economic events that keep cropping up; bad earnings here, jobless claims there, financial institutions crumbling over there. Dang!

And yet, I've been avoiding this well travelled path of despair, and lately I've been getting this whiff of something intriguing. All along I've been bucking the mainstream and calling this market with fair regularity, feeling my way through, looking under here, peering over there. And wouldn't you know it, I've developed a different perspective on the landscape, and it don't look so bad. Here's why...


I've noticed this positive divergence in the major indexes, the Dow, S&P 500 and Naz for several weeks now. And recently I've seen the formation of a nicely formed cup and handle, which is starting to form into a classic Inverse Head and Shoulder (IHS). Now, all you chartist out there know an IHS is a bullish pattern. It was the formation of the right shoulder down, you want the Bears to lose their conviction here, and those bears were sheepish, evidenced by the ultra low volume, 1.63 billion on the Naz. This is precisely what you want to see.

Now, if I'm wrong, and this wasn't text book action, then the 50s are gonna get taken out, and all bet's will be off, and the Sheep will have bit this wolf in the ass. Well, I'm sticking my nose out and saying, "I've been down this road before, and there's a mighty nice den around that bend. Why don't all y'all sheep come over for lunch?"

Now for some more technical stuff. I saw some confirmation as well. The negative divergences I have been clamoring about were taken out today, and the oscillators got reset. The next step. or steps, is to move through some semi tough resistance, also called the neckline in the IHS. In terms of AAPL, the S&P is the index to watch, the neckline there is sitting at 1389 or so.

So, if the market starts lower tomorrow, with weak action, bounces of the 50s I would buy that weakness, with a tight stop. The 50 Day EMA is at 1353, and it's the first line in the sand. If we go below the 50 Day MA, currently at 1346, that would be undesirable. It would be hard to imagine losing it. I believe this pattern will play out.

-zach bass