S&P 500 Index and Big Ten Analysis - Week of May 7, 2012

On the other hand, no one ever harkens “sell the dip”.  But maybe they should be in this case.  From a technical perspective, this market is not looking good at all with a potential head and shoulders top developing right now.

All the market needs is a hiccup in Europe and the S&P 500 Index futures will be right back at 1300.  If the stellar earnings season did not drive the market to new highs, what will?  For the time being, this is still a MINOR correction until 1352.50 is breached in the June futures.  Once that happens, say hello 1332 and then 1300.  On the upside, 1400 is getting farther and farther away, not to mention the high of the move at 1419.75.

And what stock is leading the charge on the downside, the same one that got us here in the first place, Apple AAPL.  It should be interesting to see what Wall Street analyst who upgraded AAPL in the 600’s comes out from under his/her desk and downgrades AAPL in the 500’s (while it is still there). 

The chart for AAPL is ugly and whoever tells you otherwise should not be trusted.  Closing just off the low after a steep selloff is recipe for disaster.  Once Ma and Pa read the weekend paper (guess I am show showing my age), they are going to ask “what the hell happened” and scream “ get me out”.  Therefore, with 555.00 (April 25 low) being only 10 points away, expect your first wicked bounce at that level.  Longer-term, AAPL needs to get back and hold 600.00 to stay on course for the rally to resume.

For a textbook description of resistance, check out the Exxon-Mobil XOM chart.  Getting  over 87.00 for this issue is similar to a “death sentence” as large investors (aided by High Frequency Traders) have unloaded their positions ahead of the 52 week high of 88.13.  For now, Friday’s low (84.40) is crucial support for XOM and if that level is breached, we could see 82.00 (just ahead of the April 10^th low of 81.88).

After rocketing back from its post earnings swoon International Business Machines IBM, gave some of it back on Friday.  Finally, the persistent buyer in the mid 206’s got out of the way and a pullback was on.  It is difficult to predict where the decline will end because of the steepness of the rally, and the real estate between the lows of the rally.  Therefore, do not be surprised if IBM slips back under 200 again and tests the low of the move at 196.79.  On a rally, there is going to be a lot of stock for sale from the mid 206’s up to Friday’s high at 207.11.

Microsoft MSFT is in full retreat from its 52 week high of 32.95.  After failing at that level on the post earnings rally it seems as though they never had good earnings to begin with.  This issue traded in a 0.50 cent range for six days before breaking down.  Therefore, the February 15^th low of 30.03 (coinciding with a nice round number like 30.00) could come into play this week.  Also, the 31.80-31.90 (old support/new resistance) will curtail any rebounds for this issue.

Not much stands between Friday’s low of 19.25 and the major support of 19.00 in General Electric GE.  This issue did not even close to matching the March high of 20.36 after a favorable earnings report.  As stated numerous times in my Weekly Outlook, there is too much overhang in this stock and when coupled with High Frequency Traders detecting any sizable seller, it is nearly impossible for this stock to have a sustained rally.  If the support under 19.00 is breached, look for 18.70 (April 10 low) as the next area of support.  On the upside, look for a mound of resistance at the 19.50 level, which held as support until Friday.

Chevron Corporation’s CVX break out over 107.00 turned into a fake out by week’s end.  After struggling at that level for three days in a row last week, CVX cleared it on Tuesday and rallied to 108.79.  However, the much lower open on Wednesday caught traders off guard and for the remainder of the week sellers were forced to whack the miniscule bids on the breaks in order to exit their positions.  If the weakness continues, major support stands at the April 12^th low of 100.51.  Expect resistance at all the whole numbers from 105.00-107.00 as savvy traders will attempt to exit CVX on the upswing. 

AT&T T was not very comfortable in the 33 handle, a level not visited since September of 2008.  Although T managed three closes above 33, profit takers on Friday forced T to close just off its low of the day at 32.86.  Expect sellers to resurface at 33, just ahead of the triple top (33.11, 33.15 and 33.17) and the 52 week high of 33.33.  At this time minor support can be found at 32.50 and look for a test of the previous 52 week high (31.97) if the selloff gains momentum.

Procter&Gamble PG recovered a bit this week from its disappointing earnings announcement.  After forming a triple bottom (which PG often does) on Monday (63.29), Tuesday (63.29) and Wednesday (63.40), PG attempted to get back into the 65 handle.  However, sellers came in to form a double top on Thursday (64.76) and Friday (64.75).  PG may be in for a bit of a consolidation phase before this issue tries to fill the large gap (65.26-66.63) on the upside or crack the triple bottom and march towards the November 25^th low of 61.00.

Another member of the Big 10 that closed weak, along with the market on Friday was Johnson&Johnson JNJ.  JNJ which has been on the upswing since bottoming at 62.76 on April 19^th finally ran into some major resistance.  High Frequency Traders detected large sellers just under 65.50 (weekly high 65.49) and used it as cover to beat JNJ back down under 65 and close at 64.74.  Monday’s open will be crucial for JNJ, with 6 of the previous 7 lows being between 64.68-64.84.  JNJ needs to pop off the hop or it will begin to surrender its gains coming off the 62.76 low.

Well Fargo WFC which has been range bound from 32.43-34.30, since its favorable earnings announcement, is started to lean on the lower end.  And if the current low of the move at 32.43 cannot hold up, it is not going to be pretty since the next major support level is not until the March 13^th low of 31.58.  Of course the way WFC trades, it may take a week to get there, but it is still an important level to be cognizant of.  Although WFC traded above and closed above 34.00 on Tuesday, major resistance stands at the double top from Wednesday and Thursday at 33.79.

In closing, I apologize for such a bearish slant on the markets this week.  But honestly it was to be expected when the June S&P 500 futures failed at 1400 again, AAPL is tanking (after blow-out earnings), and the index closed just off the low of the day and the week.  However, until 1352.50 (April 10 low) is breached the “buy the dip” crowd can still argue that the correction is over and new highs are on the horizon.  But unless the index can turn around on a dime off Friday’s low and rally, there will be plenty of more dips to buy in the coming weeks.  Until the “buy the dip” crowd says “sell the rallies”, it may be best to sell in May and go away.

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