DAX - Merkel better send in the PPT - Macht Schnell!

With the oscillator below entering the danger zone and just about ready to turn down, Ms Merkel better think about sending in the Plunge Protection Team to prevent the DAX from testing 6000 and eventually collapsing towards 5500 or lower. Yes folks, things are deteriorating in Europe rather quickly if you haven't noticed.

As I have said in the past, without the DAX and without China's Shanghai Composite, our own broad market S&P will NOT be able to have a sustainable rally. This chart, and especially the oscillator, looks eerily similar to some of our own stocks and ETF's.

Remember the trend is your friend, and right now its down, so play it that way.

AAPL's curves don't look so great in this picture....

Any apple I have ever eaten has been nicely curved in the right places and most have been juicy to the core. But unlike the your favorite apples to eat, the curves in this AAPL aren't so appetizing.

In addition to all the technical jargon I have been using here on this blog there is one that I don't think I have mentioned yet...the rounding bottom and rounding top formations. Below is a good example of what appears to be shaping up as a rounding top. Although AAPL is making higher highs, it is doing so with less vehemence each time and is now most of the way through what is developing into a bad technical posture.

Add to the weakening backdrop a falling 50day moving average that is close to crossing below the 100day moving average and you have what may well be a technical signal developing in AAPL that can possibly take the stock down to its May lows if not all the way down to the $500 area.

For all you AAPL lovers out there (personally I love their products, own a few of them, and have benefited from the explosive stock price - so I'm a lover, not a hater) I am not trying to bash the stock just for the sake of it. This is an unbiased opinion about the what the chart is saying to me. Essentially it is a picture that displays the emotions, thoughts, and expectations of investors and traders. Others may see it differently, but the only thing that will change my mind about MUCH lower prices for this stock is if it makes a higher high over its June highs. If that doesn't happen soon, and AAPL breaks below its 100day moving average, this apple is going to fall from the tree.

S&P futures - trendline selling well publicized

I have spoken about fractal patterns in the past and today was another good example of just that - although today was a trendline example instead of pattern. On the intraday futures chart (actually going back to late Friday) there was a trendline connecting highs that was used by sellers today.

For short term traders, the first time you can draw a treneline between any 2 peaks or troughs you should - it may not ALWAYS work in your favor but it gives you the first indication of where support/resistance may appear. In this example, after the first peak in the overnight session if you drew an extended line you would have been able to know where the sellers could appear. First resistance was between 8am and the opening, then late in the day sellers showed up again near the trendline right near the close .

Just another tool in your belt when trying to beat Mr Market.

Look out below...S&P setting up for fall.

Remember that overbought condition I mentioned in the broad market...how an important oscillator was extended and due for a pullback...well here it is finally crossing down from a high level. With the longer term momentum still falling in the weekly chart and the short term now turning down, it appears the broad market is heading for lower prices. The area of the 200day moving average should be the first battle ground (call it 1295-1305) but it is likely to be just a pause towards lower prices. Ultimately this leg down should settle somewhere in the low 1200's.

Keep a close eye on the momentum indicators and continue to play from the sell side.

Russell Rebalance

Today is a Russell rebalance day so the close should make for some interesting action on heavy volume. Watch the heavy short interest names especially.

Enjoy the weekend!

XLP - a glance at relative performance

Sometimes to get a clearer picture of whats happening we have to look at relative performance. That is, one stock, ETF, Indices, etc vs another. The daily chart below is a relative performance (or ratio) chart of the XLP vs the SPY with an oscillator on the bottom portion. The quick look at this chart shows after underperforming the broad market for Q1 2012 by nearly 8%, consumer staples (XLP) has outperformed the broad market SPY in Q2 by approximately 4%. But more importantly the technical backdrop shows that recent outperformance waning and possibly setting up for a reversal.

2 factors lead me to believe XLP is close to a period (likely months) of underperformance vs the broad market...a breach of its 20day moving average and a crossing down from an extended level of the oscillator on the lower portion of the chart.

As you can see from the chart below in December 2011 this ratio crossed below its 20day moving average but it was at a time when the oscillator was just crossing up over the 0 line with upwards momentum in its favor. Mixed signals with no high probability setup. Not only until momentum was extended, did another fall below the moving average lead to a sustained decline. These 2 instances occurring together made the probability of a fall much greater. And at the risk of stating the blatantly obvious, a high probability trade is where we want to be.

Currently the setup is similar...the ratio is crossing below its 20day moving average with the oscillator crossing down from an even higher extension than that of late 2011. At this point the only thing that can negate the weak setup is a move over 0.26 which is the recent high as well as the highs from late 2011. Otherwise look for the ratio to fall (XLP underperforming vs SPY) back towards 0.245 or lower in the weeks/months ahead.

How to possibly profit from this development - rotate out of XLP/components (or get short exposure to XLP/components) and get long exposure in sectors that look poised to outperform or sustain their current outperformance. Experienced traders can put on a ratio spread where they buy one (SPY) and short the other (XLP) dollar neutral. If you don't know what that is and would like to know please ask.

Also, if you are interested in building such a ratio chart but don't know how to do so please comment or contact me and I will go through it with you.

S&P short term overbought

Many of us traders, essentially short term whether you trade intraday or intraweek/month on a swing basis, can't help but monitor the intraday noise. Yes, sometimes the daily noise needs to be filtered out as I have spoken about the longer term trend being lower as highlighted by recent posts of the S&P, AAPL and others, but all timeframes must be monitored to fully take advantage of maximizing returns. So this chart of the SPY below shows how a key oscillator is approaching short term overbought. Can we push higher? Yes, but any advance, unless over a major moving average and over a recent high, has a high probability of failure.

Referencing the chart below and more specifically last summer, we can see how the SPY oscillator crossed up while making a higher low in late August (white circle). That cross higher led to a push in the SPY towards its 50day moving average (purple line) where it failed as the oscillator below reached the red horizontal resistance line. The 50day moving average was resistance until finally broken to the upside in early October putting a sustainable bottom in place.

Recently the SPY has acted similarly, with the oscillator crossing up while making a higher low and again, just like in the summer of 2011 pushing up against its red horizontal resistance line. What will transpire from here is likely a similar outcome to that of the last time...a struggle near this 50day and 100day resistance zone with a pullback to lower levels. How much lower is the key unknown variable here and there will be many factors in the mix to help determine a bottom (tradeable or long term) when that scenario unfolds.