QE3, Apple, and Rekindled Love for Stocks – How to Use Technicals to Navigate a Confusing Stock Market

This week is jam-packed with news. Apple, Bernanke, and Germany’s Constitutional Court are slated to make potentially market-moving announcements. Here’s one simple technical tip that will help navigate a confusing situation.

What does Apple’s Tim Cook, the Fed chairman Ben Bernanke, and Germany’s Constitutional Court have in common? They are all expected to announce much anticipated news this week.

Wednesday, September 12. Apple

Apple is putting the finishing touches on the Yerba Buena Center for the Arts in San Francisco. That’s where a select few will (or are expected to) lay eyes on the new iPhone 5.

Apple shares (AAPL) didn’t quite reflect fans’ excitement as shares dropped 2.6% on Monday.

This drop triggered a bullish percentR low-risk entry against the 20-day SMA. Just because this is called a “bullish” low-risk entry doesn’t mean it’s time to buy.

Apple shares tend to move higher when new products are revealed and correct thereafter (with the exception of the April 2012 iPad 2 unveiling, which coincided with a larger drop, instead of a rally).

A rally parallel to Apple’s event would likely provide a good set up to sell AAPL shares. A drop below the percentR trigger level will also suffice if we don’t see the customary Apple release spike.

Short selling a stock is not for everyone. But Apple accounts for 20% of the Nasdaq-100 index (corresponding ETF: PowerShares QQQ) and shorting the Nasdaq-100 via short ETFs like the Short QQQ ProShares (PSQ) is a more accessible way to benefit from falling Apple prices.

Wednesday, September 12. German Constitutional Court Ruling

The European Stability Mechanism (ESM) is the facility anointed to distribute European “bailout cash” to struggling euro zone members.

The ESM has many flaws (one of them is lack of funding) and one of them may prevent its VIP from playing “money ball.” The German Constitutional Court will rule over the legality of participating in the ESM on Wednesday.

Thursday, September 13. FOMC and QE3?

The Federal Open Market Committee (FOMC) will meet Wednesday/Thursday this week.

The S&P 500 Index (SPY) is points away from a 55-month high and I don’t think that launching QE3 right now makes sense, but I don’t know what’s going on behind closed FOMC doors and the general consensus is that the Federal Reserve will announce QE3 on Thursday.

Similar announcements have resulted in large moves for stocks, Treasuries, currencies, gold and silver.

Combat Uncertainty with Technicals

What does the S&P 500 chart tell us about stocks? If the chart could talk it’d say that now is “rubber meet the road” time.

The S&P is close to key resistance at 1,440 (this month’s r1 is at 1,437) which the Profit Radar Report has been harping about. 1,440 is the most important resistance in the neighborhood. It separates bullish bets from bearish ones and provides directionally neutral low-risk trade opportunities (my bias is to the down side, which may require waiting for a spike above 1,440 followed by a move below).

Various news events suggest that this week is important. Technicals agree. Use important support/resistance levels to put the odds in your favor.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

6 comments on “QE3, Apple, and Rekindled Love for Stocks – How to Use Technicals to Navigate a Confusing Stock Market

  1. Jay says:

    I have heard it said Generals re-fight the last war and coaches replay the last game. If I may lump myself in I was caught looking for a re-run of last year. Having sold in May I was set for another tumultuous summer – the one that did not happen.

    Warm waves of reasonable news and hopes for fiscal activism make this feel more like 2010 or even last October. The events of the coming days will certainly confirm or refute that. I am not convinced yet to double down again on the past mistakenly assuming this is then. Seems better to regard it as not a new animal but one in a yet unconfirmed mood… -jay

  2. TT says:

    Jay, This Market is just lulling us to sleep with the VIX staying under 20. Simon is pointing out those support/Resistance lines which haven proven to be so correct in the past. If Bernanke doesn’t give what the Market wants, VIX could go straight up. TT

  3. TT says:

    Correction: Haven should be have proven …TT

  4. Jay and TT – Welcome to the board. It’s almost like old times. I don’t pay too much attention to news, but today will be interesting with Apple’s “big meeting” (Apple is sitting right atop support) and the German Constitutional court ruling. Thursday is B-Day with Bernanke speaking. Economists see a 60% of QE3 being announced. I don’t see why QE3 would be announced with the S&P at multi-year highs … we’ll know more soon.

    • Jay says:

      Simon, thank you, it is nice to be here! I see you making enhancements to the site every day. No doubt we will have a robust commentary community in full swing before you know it!

      I may pick up a speculative 3x Long today to surf the wave on B-Day. Seems the high percentage play. Although with 60% of economists polled anticipating QE3 it may already be baked in leaving more downside than up. Particularly if a mere hobbyist like me is considering the trade…

      But having earned my “Don Quixote Merit Badge” from betting against the Fed before I really do not feel like getting poked in the chest with that one again :)! – jay

      • Thanks for your feedback and continued support. I would agree with your strategy, but it I’m suspicious because it seems to be everyone’s strategy. Will sit this one out to avoid the chest poke.

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