Here's the current wave for Apple on a 30 minute chart:
This appears very much like a contracting diagonal triangle, or wedge. The wedge is a 5/3/5/3/5 pattern. The inevitable outcome of the wedge is crystal clear: it will end, and with the end will come a retreat. But how far? A nice thing about the wedge is that it offers some determinism. It can only occur in position 5 or position C. The much more elusive "leading wedge" can only occur in position 1. We can't totally rule that out so we'll look at that possibility as well. First let's try to figure out when the wedge will complete. This following diagram is wrong:
While these waves are indeed 5 counts our attention is called to the RSI indicator. This is very close to a "positive reversal". Essentially, point 2 is just as oversold as point 1. Yet the price is much higher! The implication is that this wedge is not complete. Since point 1 and point 2 are very close however it tells us that the wedge will get back to approximately the same high. Let's look at what I think is really going on here:
As much as it pains me, I think this might be a more accurate picture. A small drop in the morning tomorrow would allow a "W" to form on the RSI and hit support at the bottom of the wedge. The gradually decreasing slope of the waves is more what we would expect from the wedge.
It's worth taking a step back though to see whether this analysis fits into the bigger picture. Here is a 60 minute chart:
This chart is encouraging. First you can see on the 60 minute chart that it looks like AAPL bounced off the slope line. Trend lines can trick the eye. Here we have four points. The trend is up which is how we left the day today so I'm encouraged. The big picture looks good too. The A wave here is an easy count. The B wave looks like a 5/3/5 but one has to zoom in to the 5 minute chart to see that the 3 wave is actually not where you'd expect! Regardless, our wedge fits the C pattern nicely so once again things are heading down. Finally, the rounded bottom on RSI looks pretty good from this angle although it's still clear that the uptrend is not complete.
Might the wedge complete quicker than expected? Let's zoom in to a one minute chart:
This shows today's one minute action based on the green section of the inset. Remember that what you see is what occurred today in a 10 hour stretch (includes extended hours). The final part of today's action looks to me like an uncompleted 5 wave. We would need to make at least 3 of these before the wedge could be called complete, although it could be many more if the wave extends. It's certainly possible that this could happen tomorrow although it would also create a wedge that ignores the slope guideline so I'm labeling this one as "hopeful". We'll see what happens in the morning session but so far it looks to me like a long for the day. And it looks to me like this god awful market rally is going to drag out.
Before we call it a night however let's look at the big picture to see where we're heading and what we might trade:
Unfortunately I can't make heads or tails out of the big red circled area. For this to be a continuation pattern we should have seen an X wave but that wave is almost certainly a 5 count and it makes a new low which is unlikely. So I have something wrong or something not obvious is happening, such as perhaps that our wedge is in actuality a leading wedge of a new leg up, far fetched as that may sound it can't be ruled out. When can it be ruled out? Only when AAPL falls below 310.56 and violates the rule for a 1st wave.
Can we trade it? By golly we can. Any way you slice it (leading wedge, diagonal triangles, some other unidentified B wave) it's coming down. My preferred trade would be the following:
Patience is required. My trade would be an entry with a sell stop. I would set the stop at least a dollar below the trend line to account for throw overs. As the wedge moves I would move the stop up the trend line. This could even be done mid-day to gain a few pennies.
Once the trade is entered I would exit with a bracket of a loose trailing stop on the top side and a limit order at the start of the wedge. If the entry point is broken then there will probably be an opportunity for another short but that is unlikely to happen in one day. The market has a sense of irony and even if it intends to go further it will most likely pause at that spot for a retracement that will have my head scratching again.
If one is sitting at the computer screen then it should be possible to day trade AAPL between the trend lines although I believe most of that action will occur in the morning session.
Addendum!
After looking at the markets for another hour and seeing positive reversals on the QQQ as well as an extending wave count on copper I realized that I have to consider that the market is going up and that I've missed the bottom. It is starting to look like the only thing that makes sense in the big picture. Before going to bed I decided to take one more look at AAPL in this vane and suddenly it fell into place:
It is in fact a picture perfect correction wave count. The only thing is that our wedge must be a leading wedge!!! Yikes that's scary. There's still going to be a wonderful opportunity to catch a short on this one but I would set my profit taking much higher, and really I think now it's merely a setup for a long and for AAPL to make new highs this summer.
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