Party Over for Nasdaq QQQ, AAPL, AMZN?

Tech stocks have been on fire before hitting an ‘air pocket’ last week. Is the current dip the end of the tech party or a buying opportunity?

After pointing out Fibonacci resistance (for QQQ) at 143.75, the May 31 Profit Radar Report noted that: “The Nasdaq-100 painted a bearish reversal candle today. Every red candle high (since October 2013) saw lower prices at some point over the next 1-2 weeks.”

Seven days after the May 31 bearish reversal candle, the Nasdaq suffered a monster reversal candle. Volume (for QQQ) soared to a 2017 record. The June 9 ‘red stick’ erased 10 days of gains.

On that day, more than one third of the 100 QQQ ETF components suffered a buying climax (where a stock rallies to a new 52-week high, but ends down for the week). Buying climaxes are generally a sign of distribution and indicate that stocks are moving from strong to weak hands.

Similar buying climaxes in 2010, 2014, and 2015 led to noteworthy pullbacks.

The problem with extreme ‘air pocket’ days (like June 9) is that they almost instantly create an oversold condition, and the propensity for a bounce.

Next support for QQQ is at 137.20 – 135.70. Resistance is around 141. Support may cause another bounce, but risk of further losses remains elevated as long as QQQ is below 141.

AAPL

Due to its humungous market cap, AAPL is Wall Streets’ VIP and MVP stock. More often than not, if AAPL sneezes, the S&P 500, Nasdaq and at times DJIA will catch a cold.

Based on the long-term black trend channel(s), we determined that up side for AAPL (and indexes like the S&P 500 and Nasdaq) was limited after hitting 155 in May.

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter

Support worth watching is around 140 and 135.

AMZN

The May 29 Profit Radar Report stated: “AMZN almost cracked the 1,000 mark, which more than anything is a psychological ‘resistance’ level. Cycles project a severe drop for AMZN. Last time this happened (late 2015), AMZN reacted late, but ultimately dropped around 30%. Although more gains are possible, late buyers will probably end up regretting their decision.”

Since May 29, AMZN gained as much as 2%, but subsequently dropped as much as 8.8%, before finding support around 925 (green line). 925 and support near the black trend channel deserve to be watched. It would take a move above 991 to unlock the potential for new highs.

Summary

Based on our research, we don’t expect to see a major market top at this time, but QQQ, AAPL and AMZN are likely to enter a period of consolidation and quite possible some ‘shake out’ moves designed to shake out weak hands.

The Profit Radar Report’s goal is to simplify investing decisions, avoid big losses and spot high probability, low-risk trades. The Profit Radar Report hasn’t suffered a losing trade since June 2015.

A comprehensive analysis for the S&P 500 is available here: Comprehensive S&P 500 Update

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter

Surprising Bearish Sentiment Extremes are Popping Up

Stocks have been trading in a tight range near all-time highs, but an increasing number of investors wouldn’t want to touch stocks even with a ten-foot pole.

This is somewhat unusual, but is it bullish for stocks?

Here are three sentiment gauges worth noting, and how to make sense of them:

  1. The percentage of retail investors polled by the American Association for Individual Investors (AAII) has shriveled to the lowest reading since April 2013.

    The chart below plots the S&P 500 (NYSEArca: SPY) against the % of bullish investors. The red lines mark similar levels, and how such readings affected the S&P 500.

  2. The four biggest index ETFs – S&P 500 (NYSEArca: SPY), Nasdaq QQQ ETF (Nasdaq: QQQ), iShares Russell 2000 (NYSEArca: IWM), Dow Jones Diamonds (NYSEArca: DIA) – suffered $16 billion worth of withdrawals in April, one of the worst months (for index providers) on record.
  3. According to the Commodity Futures Trading Commission’s (CFTC) commitment of traders (COT) report, the ‘smart money’ has reduced short equity exposure while ‘dumb money’ is selling stocks.

When viewed in isolation, the above-mentioned sentiment developments are bullish for stocks. However, they are contradicting the bearish message conveyed by seasonality and market breadth.

For now, we probably shouldn’t blow such bearish sentiment messages out of proportion. Stocks are still stuck in a range, and the contradiction between indicators may just perpetuate the range, or stretch it.

I would watch S&P 2,118 as line in the sand. A break above 2,118 would likely reel in buyers. Although it may not be long before ‘buyers remorse’ sets in again.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Commercial Money is Loading Up on Short Nasdaq Positions

Commercial investors, the ‘big boys of investing’ are considered the smart money on Wall Street. It generally pays to follow their lead. Right now commercial traders are short the Nasdaq-100 to an historic extreme.

For a moment picture a boat, the kind of boat you’d take on a fishing trip or island excursion.

Now imagine your favorite football team on the boat. Everything is fine as long as all 53 players are evenly spread out over the boat.

All of a sudden a gray whale shows up and all players are moving starboard.  Now the captain screams to avoid capsizing the boat and swimming with the whale.

Right now, almost all investors are on the same side of the trade. To be exact, investors love stocks, the S&P 500, Dow Jones and particularly the Nasdaq.

Since mid-October the tech-heavy Nasdaq-100 has been on quite a streak, gaining almost 10% in less than a month.

The Nasdaq chart below plots the PowerShares QQQ (Nasdaq: QQQ), the Nasdaq-100 tracking ETF – against commercial traders net short positions in the Nasdaq e-mini futures.

Commercial Nasdaq money is now short to a rare extreme.

Commercial traders are considered the ‘smart money.’ They are not a contrarian indicator.

As the red lines bring out, the Nasdaq QQQ ETF hits a ‘rough spot’ more often than not after similar extremes (especially in the last two years).

The above Commitment of Traders (COT) data in itself should not act as a sell signal.

But the COT is confirmed by other sentiment extremes.

In fact one of them as a flawless track record of predicting S&P 500 corrections. Click here for more details on this accurate S&P 500 Correction Indicator

 

How Much Lower Can Apple Fall?

Apple shares have fallen as much as 17% since their September all-time high. Based on Apple’s humongous gains since 2003 the down side potential is quite large, but here’s one important support level to watch.

Did somebody upset the “Apple cart?” Apple’s earnings disappointed and the stock closed lower 6 out of 8 trading days. How much lower can Apple fall?

For readers of iSPYETF Apple’s 17% drop doesn’t come as a surprise. This September 18 article posted on iSPYETF (Technology Investing for Beginners – You Can’t Lose Money with Apple Math) warned that:

“Common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF and SPDR Technology ETF (XLK) will follow Apple’s direction.”

The September 12, Profit Radar Report (which identifies profit opportunities for subscribers) issued this trading recommendation: “Thus far Apple has been able to close above support at 660, but RSI is deteriorating. Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660. Obviously, there is no short Apple ETF and if you don’t have a margin account set up, you may consider using the ShortQQQ ProShares (PSQ), which aims to deliver the inverse performance of the Nasdaq-100 (Apple accounts for 20% of the Nasdaq-100).”

How Low Can Apple Go?

AAPL has rallied from $6 – $700 since 2003, so obviously there’s plenty of down side risk. The more appropriate question is: Where’s the next support for AAPL?

Below is an updated version of a chart that was first featured on this site on August 22 (Apple Bullies the Nasdaq and S&P 500 But May Soon Disappoint Investors).

We’re looking at a log scale chart of AAPL prices with two purple trend lines and a black parallel trend channel. The black trend channel contained prices since April 2010 and alerted us of the recent Apple top.

AAPL pulled away from trend channel resistance a few weeks ago and is now approaching the upper purple trend line. This trend line coincides with the 200-day SMA at 588 and will be important support. How AAPL reacts to this support may well set the stage for the Nasdaq and S&P 500.

The Profit Radar Report looks at all major markets (and some major players like Apple) to identify high probability, low-risk trading opportunities (or upset Apple carts).

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.

Technology Investing for Beginners – You can’t Lose Money with Apple Math

I got this piece of “Apple Hot News” in my inbox yesterday: “Apple today announced that pre-orders of its iPhone 5 topped two million in just 24 hours, more than double the previous record of one million held by iPhone 4S. Demand for iPhone 5 exceeds the initial supply, and while the majority of pre-orders will be delivered to customers on September 21, many are scheduled to be delivered in October.”

What’s the profit margin on 2 million iPhones? Apple doesn’t reveal profit margins, but Reuters got hold of a document filed in Apple’s patent battle against Samsung.

According to this document, Apple’s gross margin for U.S. iPhone sales between April 2010 and March 2012 ranged from 49 – 58%. The iPhone 5 sells for $199 – $399 (depending on built in storage).

Let’s calculate a 58% profit margin on 2 million iPhones sold for $299. The result is $347 million. Since last Thursday’s unveiling of the new iPhone 5, Apple (AAPL) shares have risen 3.5%. This means that Apple’s market cap increased by some $24 billion.

A $24 billion increase based on the news of 2 million pre-orders worth about $347 in gross profit doesn’t make sense.

In fact, common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF (QQQ) and SPDR Technology ETF (XLK) will follow Apple’s direction.

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.