Friday, February 10, 2012

Apple (AAPL) in a capitulation rally

The S&P 500 index is continuing its low-volatility consolidation just below significant resistance around 1157. Today’s intra-day high of 1154.3 came quite close. But a bigger story in today’s markets concerned one of the index’s banner components: Apple (AAPL).

Today’s price action brought Apple into resistance from well-formed price channels on the daily- and hourly- bars charts. While remarkable in and of itself, the arrival of the bellwether stock at sturdy resistance provides compelling support to the higher-order thesis that the broad market might face an imminent volatility breakout, probably to the downside.

AAPL, 4 y 1d

AAPL, 180 d 1h

The stock’s approach of resistance is additionally notable for occurring on an acceleration of upward momentum, best illustrated in the upward breakout of AAPL from its price channel on the five minute -bars chart. Such price action is the mirror image of a capitulation sell-off, in which price craters amid an onslaught of volatility, and reveals a similarly unsustainable build-up of emotion.

AAPL, 20 d 5m

Further evidence of capitulatory buying is offered by the price oscillator index on the daily- and hourly- bars charts, which is at maxima for the respective charts. The price oscillator index measures the difference between current price and the 200-period simple moving average, and very high values indicate an overbought market.

In short, the combination of Apple’s accelerating appreciation in value and arrival at resistance from long-term price channels suggests a local maximum is imminent.

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