A very good day to you!
We had a very good bull run since I start mentioning about stocks to buy since January. Apple has gone from $117 to about $133. Yesterday it dropped to $128.79. So how is the market doing and is Apple having a short term top here?
To answer the question we need to look at the charts to tell us what market participants have done this past few days.
The first thing we are going to look at is the Dow Jones Industrial. The chart above is the daily chart of Dow. You can see that it found support at the 200 MA. The 200 MA is a very important psychological MA and the Dow bounce up from there. It later broke the trendline and from there it shot up and made new highs. The momentum is still up and I believe (absence of any super bad news) that it will most likely keep making new highs in the coming weeks.
The next thing we are going to look at is the SPY which is the exchange traded fund of the S&P 500. It mimics the index and is generally use by stock traders to trade the index. It also behaved like the Dow and found support at the 200 MA. It broke out of the trendline and made new highs.
The chart above is the QQQ which mimics the Nasdaq Composite. You can see that it broke the trendline and I actually bought some call options here anticipating the break out. Since there were 4 times more buyers than sellers in the Level 2 quotes I bought the options and is now making some money on it. The spinning top formed yesterday however is a bit of worrying. Perhaps drag down by Apple's decline. There's not much to be analyzed in the daily chart so we will now switch to the 60 min chart to have a deeper understanding of what is really happening inside the market.
The chart above shows the 60 Min Chart of QQQ. The QQQs are forming and orderly rise why is good. There is some support around $107.80 and tech stocks should be ok as long as the QQQ are above the support and above its hourly 50 MA.
Now I want to show you the chart of Apple.
The above is the daily chart of Apple. It rose from $130 to $133 in a single day a few days ago. And then a doji formed which signaled indecision. The next day, the stock dropped 2.56%. Im not sure if a top is forming but this is worrying. Having mentioned a few days ago that our target of $130 is met, I told my readers to start selling into strength keeping some if Apple will continue to shoot up. I think its a wise move.
The 60 Min Chart below of Apple will give us a clearer picture on what next to do.
There's a lot to be learned from looking at smaller time frame. Multiple time frame analysis is a must and is rarely made by newbies. But all pros know the benefit of doing these analysis.
First you can see the reason why Apple fell yesterday. It broke a rising trendline by gapping lower and gapping below a rising trendline is never a good sign. It fell all the way to around support. You will notice that the volume at the last two bars are heavier. They are formed by day traders covering their shorts. Yes! Believe me, even if Apple is so hot, there are pros out there who like me think Apple is a bit extended and they look for every opportunity to short.
Lets see if the support holds. Usually it will cause a bounce. I do not believe in buying for long term holding now as its a bit extended. We spotted this stock long ago and by now one should be selling their positions. We wait for the next daily setup to form to buy.
Another thing that I do not like about Apple is that it fell below its hourly 50 MA. This is usually not a good sign. However, the QQQ (Nasdaq) is still above its hourly 50 MA and overall its still ok for tech stocks. If Apple breaks below its hourly support then I think it will drag down the QQQ as well.
The chart above shows the 60 Min Chart of SPY. In this chart, we can see that SPY is still very healthy. Since S&P 500 represents the bigger market, most stocks will be ok as long as its above the hourly 50 MA and above the support. If it drops below them, I will advise lightening on existing positions. You also do not buy stocks(initiate new buys) when SPY is below its hourly 20 and 50 MA.
Moving from Apple and the Indexes, lets look at one of the stocks I mention sometime ago. Starbucks! I love drinking it and so does my sweetheart. I recently bought into it and is still holding positions in it. It is looking good and does not show any signs of weakness in the daily and hourly charts. So will look to hold on to it a bit longer.
I want to show you another stock. Maybe not very popular. Its called Cracker Barrel Old Country Store. I bought into this stock and it rose about 10% in two days. Why did I buy it? Well, go back to the chart of Apple and look at it. Looks familiar right? Well there is nothing new under the sun. This chart pattern will form again in hundreds of other stocks in the future. So what I advise you to do is to stick a chart of Apple in your desktop and memorize the pattern. When you see it formed in another chart buy it.
Im monitoring Cracker Barrel everyday to see for any sign of weakness. For now I'm still holding on to it.
The last chart in today's analysis if that of Billionaire Warren Buffett's stock. Berkshire Hathaway. The chart above is a weekly chart of the stock. Despite the daily volatility, this stock is powerful and looks like its about to break out soon. If it does, Buffett will again amass a few more billions!
Hope you gain something from today's analysis. To learn how to spot great stocks like the above, read 5 Stock Market Secrets That Will Make You Money. Then follow me on FB and I will answer any questions you might have.