Technical Tuesday – Big Chart Bonanza

Lots of interesting chart levels today:

As you can see from our Big Chart, the damage has been done over the past week as the Russell has once again failed at the Must Hold line, as has the NYSE and now we’re watching 17,600 very closely on both the Dow and the Nikkei (which we’re shorting this morning at 17,800 on /NKD Futures) and the Nasdaq has been rejected at the 20% line (ridiculous anyway) and the S&P will test its 10% line at 2,035.

[Chart by Dave Fry]

While I’m not a big proponent of TA, we still pay attention to it as the majority of traders are using it and that makes it a self-fulfilling prophesy as so many people trade off the same lines that the lines appear to have some meaning.  

In truth, those lines are no more a barrier to stock movement than the lines on the highway are to stop you from changing lanes.  You might generally stay within the lines but, every once in a while, you simply cross them.  

The fact that you USUALLY don’t doesn’t lead you to conclude that they are a wall, does it?  Why then, when looking at a chart, would you conclude that arbitrary lines are a floor or a ceiling to movement?  Surely the stock doesn’t know where those lines are.  

AAPL sure didn’t know where it’s line was yesterday as that stock had a mini “flash-crash” and plunged to $111.50 (6.3%) in the first 21 minutes of trading yesterday and then spent the rest of the day recovering half of its losses.  

There were stories about weak IPad sales but nothing particular worthy of a panic sell-off and, in fact, BCS upped their target on AAPL to $140 before the market opened – certainly nothing worthy of AAPL losing $40Bn in market cap in less than 30 minutes!  

AAPL’s drop took the Nasdaq with it, of course, as well as other high-flyers like BABA – as traders simply start dumping first and then try to find out why they are doing it.  Fortunately, at PSW, aside from being well hedged, we are well-trained to ignore this kind of nonsense though it would do us all well to remember that, in a thinly traded market like this one, even the World’s largest, most liquidly traded company is subject to major panic sell-offs.