Apple and Markets Take a Break

Yesterday was a day of unwinding. The RSI and Stochastics were peaking for days (70s, 80-100 respectively) on what seemed like an endorphin induced high. Investors were looking for just about any reason to take things down. You could point to any number of reasons for yesterday's decline; oil, housing market, consumer spending - any one could have been the catalyst.

So, today you can probably expect a slight advance, or rebound, to balance yesterdays pullback. Especially with stronger companies like Apple (AAPL), but I expect the next few days to be flat to slightly down while selling continues. The good news is that selling pressure has largely resided, and pessimism is peaking.

Huh? Pessimism peaking is a good thing?

Yes, especially if you're a perma-bull. When pessimism peaks, the supply/demand equation is usually poised to flip. It's a contrarian bullish signal. But don't get all giddy, because one day of selling doesn't wipe away a week or two of optimistic buying, it might take a few days. The good thing is that our floor of support is now higher than it was two weeks ago.

Speaking of support, we have a confluence of support indicators on the Naz at 2377, with the 50 day EMA, our neckline price support from the inverse head and shoulders, and the long term downtrend line. Also, for you candlestick chartists out there, yesterdays action formed a bearish engulfing candle, usually indicating a bearish reversal. I think it will be short-lived, expect good support at the 2390-2400 range.

So, as of this writing (9:20 EST) AAPL is trading up in the pre-market about a dollar, and futures are flat to slightly up. We'll probably see AAPL open slightly above yesterdays' close, and the action in the first 45 minutes will likely determine the rest of the day's trend.

As I said yesterday, this dip represents a buying opportunity, although I think the prime time was yesterday afternoon. Buying here or above does not provide a sufficient risk:reward, in my opinion. Unless of course, it drops below 181, then AAPL looks more attractive. This is one of those days, where you don't want to get too forceful, let the market play out. Less is more.