March 2, 2012
Is AAPL This Year’s Silver
It is hard to deny the seemingly unlikely but stunning comparison between AAPL’s last six months of trading and the last six months of trading in silver to precede its correction last May.
This does not mean, however, that AAPL will suffer from the same sort of collapse nor is it the purpose of this note to predict that AAPL will suffer from a correction. Rather, this uncanny chart likeness should be used as a possible signal that AAPL’s nearly 40% move over the last three months may be unsustainable and may need to consolidate.
It makes sense, then, to monitor AAPL’s near-term uptrend for any signs of a potential reversal considering the speed and violence that took silver down in reaction to its dizzying ride up. After all, the only difference between the chart of silver shown below and the one shown above is five trading days.
That and 33%, of course, after silver overstayed an unsustainable uptrend and something that produced an equal and opposite reaction to the last two months of that move up.
Will this sort of a correction occur in AAPL? Who knows and it very well may not, but it is worth pointing out the possibility sitting clearly in its chart when aligned with the chart of silver and a possibility that stands out even when AAPL’s possibly more precarious-looking chart sits alone. Much of this year’s nearly 30% rise in AAPL, after all, is built on top of an unclosed gap and something that is likely to close, or to be reversed by an Island Reversal, with the goal of either possibility to take AAPL back down to between $420 and about $430 for a more than 20% potential decline.
And this brings us back to the question posed above about the challenge around how to identify the potential for a dramatic decline in AAPL and this is probably best done through the use of Bear Fan Lines even though this methodology cannot predict the reversal but only prove when it has started as can be seen by taking another look at silver.
Looking back at silver’s chart now, it is possible to see that its uptrend remained in effect so long as silver traded above that all-important bottom and third Bear Fan Line that is bolded and that was case until May 2 of last year. Once, however, silver slipped below that trendline, it provided a signal that silver’s near-term uptrend was reversing down and not a bad signal at $45 per ounce relative to the $33.03 per ounce seen at one point on the Friday of that same week.
Interestingly, there were even more tightly calibrated Bear Fan Lines around the last few weeks of silver’s move up that began to signal something might be amiss and a line that is marked in lightly in the chart above and one that started flashing red before silver even hit its second incredible and greedy peak.
In turn, Bear Fan Lines may be a methodology well worth applying to AAPL to use a possible way to gauge a potential reversal whether it turns out to be as extreme or not and this means it is more about defense, reactive charting, as opposed to predictive charting.
After all, just because AAPL’s chart carries an uncanny similarity to the chart of silver in almost every regard does not mean it will produce the same result, but it may and it is that “may” or that possibility that is worth defending against should it happen.
And so this takes us to the chart of AAPL and what stands out the most is the fact that AAPL is flirting with the very trendline that provided the pre-signal to silver’s cross below its third Bear Fan Line.
In fact, so long as AAPL remains above that third Bear Fan Line at about $505 currently, its near-term trend is an uptrend and this trend should be presumed to be in effect unless proven to have reversed.
Proof of the potential reversal comes only if AAPL drops, preferably closes, below that third Bear Fan Line at $505 now and something that can be taken as a real possibility if AAPL closes below that short trendline at about $545 today and then quickly rising each day thereafter and more so if AAPL drops below the middle Bear Fan Line at about $525 currently and a level that rises each day with AAPL’s near-term uptrend.
Again, then, unless AAPL drops below its rising third Bear Fan Line at about $505, AAPL’s trend is up and it reverses only if AAPL drops below that rising level.
One reason to think that this near-term uptrend could reverse, however, and ahead of any potential pre-signals that would be sent by a close tomorrow below $545 or $535, is AAPL’s long-term and rather impressive bearish Rising Wedge.
Clearly this is one of the more absurd patterns out there, but there’s no denying that there is a very well-formed 5-touch Rising Wedge in AAPL’s monthly chart without even using its point of origination and it is so absurd that its target is not worth mentioning.
What is worth mentioning, however, is the fact that the potential for a seemingly dramatic reversal detailed in relation to the last few months of trading won’t even take AAPL to the bottom trendline of that pattern at about $370.
Put otherwise, a 20% to 25% decline in AAPL will hardly register in AAPL’s long-term chart and to the degree that it does, it will serve to create what looks natural to that pattern’s rhythm and that is for a touch near that bottom trendline – consolidation – whether AAPL then climbs or drops to fulfill its massive monthly Rising Wedge or simply trades back up in AAPL’s long-term uptrend. In fact, this means that the many fundamental calls for AAPL to move toward $1,000 do not exclude a near-term drop in AAPL nor does such a possible correction in the near-term preclude AAPL from climbing much higher in the long-term.
Nonetheless, should that type of decline take place in AAPL over the next 12 to 24 months, there will be good reason to say that AAPL is this year’s silver.
Sam’s Stash, Gold and the S&P
Let’s take a look at what silver is doing today after its most recent and dramatic decline that was a bit overdue and one that is still in reaction to silver’s 176% QE2 rally and frankly, one that looks like it will keep “reacting” down until complete equality of motion has been found.
Specifically, silver is trading in a very nice Descending Trend Channel with its current and bearish Rising Wedge bumping up and reacting off of that top trendline of resistance with an apex that appears to be a possible Double Spike Top that could take silver down toward $30 per ounce pretty quickly.
That being said, silver may trade sideways for a few weeks between about $32 and $37 per ounce and perhaps going into the March 13 FOMC meeting.
Irrespective of whether silver heads quickly for $30 per ounce in the days ahead or after a bit of sideways trading as occurred in the apex areas of those previous and fulfilled Rising Wedges, silver is likely to fulfill its current Rising Wedge, too, and one that confirms safely around $34.25 per ounce for a target of about $26 per ounce while the bottom trendline of that Descending Trend Channel would like to pull silver down to about $22.50 per ounce at some point in the first half of this year.
All in all, then, silver’s future may not be quite as shiny as it seemed at this time last year.
Thank you for taking the time to read this week’s piece and have a relaxing weekend.
DISCLOSURE: Small positions held in SDS, TYP and ZSL.
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