Short-term Risk Level: 5
The price pattern and history of pulling back after Apple earnings suggests a
multi-day pullback is most likely. This is still within an overall
positive multi-week timeframe, though, so we'd expect the next set of oversold
readings to lead to another rebound.
Sentiment
There wasn't much of a change among most of our pure sentiment-based indicators
on Tuesday despite Tuesday's rally. We still have about an equal number of
bullish and bearish indicators.
Traders' increased comfort for risk-taking and resulting push into technology
stocks has moved the
10-day average of Up Volume on the Nasdaq exchange to staggering 68%.
In the past 30 years, that has been matched by 58 other trading days.
While many of those saw some kind of short-term reprieve from overbought
conditions, the rush of buying pressure tended to persist. A month after
those 58 days, the Nasdaq Composite showed a positive return 53 times, a 91%
success rate, averaging +4.6%.
Price Action
Stocks look set to gap
lower Wednesday morning (obviously, it's very early and could easily change).
This kind of pattern has
usually led to some short-term weakness. We're looking at gaps down of
0.5% or more after the S&P had rallied at least 1.5% to a one-month high while
below its 200-day average.
Of the 15 occurrences,
the S&P rallied from the open to the close 35% of the time. It was
positive a week later 30% of the time.
Seasonality
In
July, we went over the history of how the market did after Apple's earnings
when the market had already been doing well. History was not kind, and
wasn't again that time.
If we look at times when
Apple gapped down 3% or more following earnings, and the Nasdaq 100 was within
3% of a 52-week high, then there were 5 occurrences since '97. 4 of the 5
led to short- to intermediate-term peaks in the NDX. The dates were
10/16/97, 10/16/03, 1/15/04, 1/18/07 and 10/19/10.
That last time (from
October 2010), stocks shrug off weakness in Apple and that was a very good sign
for the market going forward.
Miscellaneous
At the most ebullient
point today, 1,551 more securities traded on an uptick than on a downtick on the
NYSE (Bloomberg data). That's almost exactly 50% of all securities,
and is a level of "oh man, get me in!" that we rarely see.
There have been 31 days
with when the TICK matched or exceeded this level. The next day, the S&P
500 was positive 35% of the time, averaging -0.7%.
The negative performance
tended to last a bit longer when the S&P was trading under its 200-day average.
In those cases, two weeks later the index was positive 29% of the time, versus
50% of the time when it was above the 200-day average.
There
was a rush into stocks on Tuesday, which tend to lead to short-term pullbacks.
Same with the typical behavior after Apple earnings.
