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Stockhaven’s Market Take 1/15/13

The indexes gapped down below their lows of the prior two days today but battled their way back to undue the would be technical damage. Here’s what I’m trading on:

  • DJT breaks out, DJI isn’t far behind — The Dow Jones Transportation index broke above 5,627 (its 2011 & all time high) and the Dow Jones Industrial average broke 13,500 which meant new year-to-date highs
  • AAPL continues to slide — No surprise here, AAPL traded to its lowest level since 2/09/12
  • Is a big move brewing in the SPY? — After 3 failed attempts at a close below 1,470, the S&P500 looks to be setting up for a big move higher 

 Stockhavens Market Take 1/15/13

Going into last week I said I wanted to know if DJT could break its 2011 highs around 5,620?

“…make sure you have your eye on the Dow Transportation Index (ticker $DJT on etrade pro and $TRAN on stockcharts.com). DJT broke out in a major way starting on December 18th and accelerated that breakout greatly last week. Even with the breakout though, DJT is still below its post financial crisis high at 5,627 (closed last week at 5,534).

Why is the DJT an important index to follow? Because it is a key component of Dow Theory and if it breaks that 5,627 level it will give of a technical buy signal to followers of that theory. Obviously there is no perfect science in trading, but the more bullish technical set ups out there the better, for the bulls anyway.”
-Stockhaven’s Market Take 1/6/13 

Today DJT was able to do just that, continuing yesterday’s move north and taking out the 5,627 2011 high. This is a great sign for the bulls and means we should expect to see continued strength from airline stocks such as LUV, DAL, UAL among others. In addition, this could also signal limited upside in oil (as measured by USO). The thinking here is that higher oil prices are bad for transport stocks (as it causes greater fuel expenses for them). Therefore, with DJT breaking out to new highs the market could be picking a winner between oil and the transports and declaring transports that winner, at least that’s the way it appears.

AAPL continued its alarming pullback from its all time high and its year-to-date loss is now about 8%. That’s in stark contrast to last year, when AAPL was up 3.5% on the way to a 12% gain for the month of January. With the move into the $480′s though my pre earnings target for AAPL has been hit, and betting on severe downside from here is much riskier than it was in the $520′s. For those who would like to do it though, I’d watch for a breakdown below today’s low ($483.38) on a similar volume pace day as today’s to target a move towards $470.

Overall, I believe AAPL is setting up for a deeper move into the $420-$440 range (as that was home to previous all time highs before the parabolic move higher) but I am beginning to sense a scenario in which the short-term oversold stock gets a jump on earnings but then resumes its sell off. This is a scenario that played out last Spring, when AAPL fell from $644 to $555 ahead of earnings, gapped up to $610 on the earnings release, but then fell all the way down to $530. I’m not saying the size of the move will be similar, just that this is a scenario that is starting to make sense to me, given that the stock has already dropped so much the week before earnings (this is based on AAPL staying below $500 pre earnings).

Have you been bearish these last few days? If so you are undoubtedly quite frustrated with the way SPY keeps clawing back near $147 (1,470 in SPX) even after putting in consecutive lower lows. This strength is very impressive, and leads to me believe the market wants to go higher. One of our resident traders, deanstrader, wrote about the need to listen to what the market is saying  and I believe that thinking is even more appropriate after the last two days.

Two days in a row SPY has gapped down, only to end up finishing near the highs for the day. This tells me one thing, there simply isn’t a lot of sellers (supply) at the current level. This is potentially surprising given that SPY is perched right at 5 year highs so you would expect there to be ample supply. However, the volume during the attempted dips the last 3 days is the lowest we have seen all year. We are witnessing a case of low demand, but even lower supply. This means that there doesn’t need to be a huge increase in demand in order to get a big move higher. Given that its expiration week, and SPX is so close to breaking 1,475 I suspect we could see a strong move in SPY this week as it attempts to break into the $148′s.

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