Wednesday, October 13, 2010

Trading The Qs Or Trading AAPL?

Betting against the Qs this year has been the same as betting against AAPL. AAPL carries a 20% weighting in the Nasdaq 100 and 43% of the gains in the Qs this year are due to the rise in AAPL. But what AAPL has given, AAPL can take away, and AAPL is showing a number of negative divergences. It has also run up against median line and round number resistance.

The Qs bested the April high today as expected by the recent price action, but it failed to close above that level. Volume was only about 6% higher than at the April high, which is well below the 10% minimum to confirm a breakout. The weekly volume run rate is well below the volume for the high week in April. New highs are running well below the April high level.

Regardless of the price level, there is still nothing that convinces me that the entire rally from the July low is anything other than a B wave, which is what has been proposed all along. The only fly in the ointment has been the greater than expected retracement of wave A down. But B waves can extend above the origins of A waves, and it doesn't change the final outcome, which is wave C down. Wave B in the SP500 in 2004 lasted from 3/24/04 to 6/24/04. The Qs topped on 6/30/04. Wave C down bottomed on 8/13/04. The current B wave rally is only a little longer in time than its 2004 counterpart.

If wave C down is to happen, it will be soon. If there is no downturn by early November, then something completely different is probably going on.

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