Quick Hits 2/25/2018 – AAPL, FB & Oil Futures
Let's continue the review for sectors that appear to have potential for the next leg up, or possibly even during the market correction. While most stocks do follow the general market, there are always some stocks that go up. Let's see if we can find some of those groups.
Let's start off taking a look at Apple and its recent pullback and recovery. A weekly candlestick chart helps to eliminate some of the "noise" or volatility on a daily chart. Unless you are day trading, I typically recommend using the weekly charts. The monthly charts help to identify a trend while the weekly charts are used to identify specific support and resistance areas within the trend.
For this review of Apple, I want to look at a 10 year monthly chart for Apple because I think its important to compare the recent pullback and rebound to other similar chart activity that happened several years back. Now, a stock's price may not always act exactly the same as previously but it does give a good starting point as to what could happen. And anticipating and being ready for what "could happen" is half the battle with the stock market.
This 10 year monthly candlestick chart shows a couple of important things in my mind that I would like to point out.
If AAPL does make a new high during this attempted rebound, that does not necessarily mean that its consolidation period is over. Its share price could be forming an Expanded Flat wave pattern. In an Expanded Flat wave pattern, the top of Wave B actually breaks above the top of the previous uptrend as shown in the next illustration.
An expanded Flat wave pattern typically develops in a strong bull market like we've had, that is why part of the "correction" actually goes higher than the top of the previous uptrend.
So while the recent rebound for AAPL's share price is nice, the risk of another trip to the $150 area has not yet been eliminated. This potential risk of another trip towards the bottom of the recent pullback actually remains for quite a few stocks.
Other than an Expanded Flat wave pattern, there are a few other types of Flat wave patterns or Triangle wave patterns that could be developing. Illustrations for other common types of Elliott wave corrective patterns can be found on the TSC members webpage "Advanced Elliott Waves". Make sure to be logged in before clicking the link otherwise you will be re-directed to the subscribe page.
If you look at most of the corrective patterns on the page, all of the Wave C pullbacks in the Flat and Triangle wave patterns end either slightly above or slightly below the bottom from Wave A. That can be very useful for a trading strategy.
Use the next pullback towards the $150 pullback area to accumulate more shares. If you are fully invested in AAPL already, then consider trimming shares around previous highs as I mentioned in the Idea Chamber last week. If you are interested in trimming shares, let me know and I can calculate some potential short-term targets for the current rebound.
The only thing that gives me pause to say for certain that AAPL is still consolidating is the gap-up that occurred during the recent rebound. The gap-up can be seen on a daily candlestick chart for Apple. That gap-up seems to indicate a new uptrend in place. AAPL's price and volume action as it approaches its previous high should provide more clues. Stay tuned and ask for updates if you are long as it gets there....
This chart is a 1 year daily candlestick chart for Facebook (FB). I used a daily chart for FB only because when I was comparing technical items on its weekly and daily charts, I noticed what I think was a completed Expanded Flat wave pattern on its daily chart.
If FB did develop an Expanded Flat wave pattern, that would suggest staying long and accumulating more shares on its next pullback.
Back in November 2017 I suggested picking up FB shares on a pullback to the $172-$175 price level in this article "11/20/2017 – $209 Price Target for Facebook (FB) Confirmed". Specifically I mentioned that
This long-term chart suggests purchasing any pullbacks to the $172 - $175 price levels during November or December. The $172 - $175 support area is identified by the green trendline from the past year.
FB was showing signs of distribution when I made the suggestion but I did not realize at the time that it was consolidating. Since the November article, FB's share price has provided 3 significant opportunities since that article to purchase shares around the $172 price level. The most recent pullback may have been the last opportunity to purchase shares at those levels before its uptrend resumes.
Now, it is possible that FB's share price could have one possible last opportunity at the $172 - $175 price level. If that opportunity does come, I would anticipate that it does within the next 2 weeks. And while one last pullback to the $172 - $175 price level is possible, I do not think it is probable.
IMO, the only way FB will see the $172 - $175 price level again is if the NASDAQ Composite confirms in the next couple of weeks that it is still in consolidation mode. In the meantime, FB should not make another new all-time high. If it does make a new high, which I anticipate it will, it will confirm the Expanded Flat wave pattern and new uptrend.
After noticing the Expanded Flat wave pattern on FB's chart, I went back to Apple's daily chart to see if I could see a similar pattern but did not notice any chart similarities between the two other than one - both had a Bearish Impulse wave pattern develop during their pullbacks 2 weeks ago. Wave C of an Expanded Flat wave pattern is made up of a Bearish Impulse wave pattern.
Ending a consolidation period with a Bearish Impulse wave pattern could indicate that the consolidation periods for both FB and AAPL could be over.
Oil Futures - Light Sweet Crude Oil
This next chart is a 10 year weekly candlestick chart for futures trading in light sweet crude oil (LSC for short).
LSC recently broke above a previous resistance area from March 2015. Breaking above a previous resistance area is a technical indicator to buy the next pullback. The only problem is determining the extent of the next pullback - I see two distinctly different possibilities.
The first possibility is a 2-3 month correction that ends somewhere around April 2018. It would correct only the uptrend that began in July 2017 and just recently ended.
The second possibility I see is a duplication of the price and volume activity from the $26.05 bottom to the recent top in January 2018. However this duplicated activity would be in reverse, first bringing LSC's price back down to the $40 - $45 price range where it consolidates for a while and then proceeds to make a move back to re-test the $26.05 previous low.
So how can this be played? If oil prices are pulling back for a period of either 3 months or possibly 2 years, do the charts for the oil company or oil refinery agree with this analysis?
One chart that comes to mind is the chart for XOM. I have been bearish on its charts for a while except for a trading opportunity I wrote about in the Idea Chamber several months back. XOM's charts still don't look good and definitely could pullback another 15% as the above oil chart suggests.
Because of the technical indicator though, it would be wise to start researching a possible oil company or refiner that you would like to invest in for the long-term. The opportunity could be as few as 3 months away instead of the 2 years so it would be best to be prepared if the opportunity comes then.
The price and volume action for the NASDAQ Composite over the next 2-3 weeks is going to be very telling for the long-term trends of several stocks under its umbrella.
The first rebound during a consolidation period always feels like things are back to normal. Things kind of are, but the volume has been missing. Missing volume is another "indicator" that a consolidation period is at hand. Without buying volume to push the market higher, it may consolidate for a while and make sure all the sellers are out before the next leg up begins in earnest.
But if you were able to withstand the pullback from 2 weeks ago, then I would continue to stay long the market. Just consider raising some cash to take advantage of opportunities in case the index and individual stocks have another significant pushdown like the one we had 2 weeks ago. If that pushdown does happen, start buying as the index approaches the previous lows. It won't feel like a market buying event, but it will be if it does happen.