One stock that looks at least to have ended its stretch of relative weakness is Apple (AAPL). The company is set to have a keynote event today that is presumed to be the unveiling of the iPhone 5. Combined with Bernanke’s testimony, perhaps these events can drown out some of the pessimism and produce an oversold bounce off the 1070 area in the S&P.
The Oscillator has reached -51 which is pretty oversold. Markets have bounced from this type of reading in the past but this market is very sick and very dangerous. We say “don’t try to catch a falling knife”, and it is a painful reality to use that description about the broader market. Remember that the Oscillator was -110+ before the market bottomed in August, so don’t start too early if you are looking long. I wouldn’t think think of macro longs until we are trading below 1050 in the S&P.
High beta tech stocks remain under pressure despite AAPL holding up well in the pre-market. When the market loses its momentum leaders, and you start seeing technical damage to individual stocks charts while the indices hang on by a thread, it is a sign of things to come. We saw that last Wednesday.
While this wide lower flag pattern had remained intact, a recent series of lower highs had begun to forecast the downside continuation was imminent. In the S&P we saw 1230 on 8/31, then 1220 on 9/20, and lastly 1195 on 9/27.
Yesterday we broke below 1120 and closed below the August 9th low of the Summer at 1101. The 8 week range that traders have been using as a guide to trade against is in the process of getting resolved to the downside.
If you are short this market I would think to cover into a cascade lower where 1070ish will be some support. If you are short and cover early it will put you in the right frame of mind to potentially accumulate a larger support level. If you are waiting to put money to work, wait for a quick momentum rinse before thinking buy. Yesterday was a very controlled, steady sell-off, not the type of action that forecasts a bottom.
*Disclosures: Scott Redler is long October 112, 111, 109 SPY puts and Short SPY.