By James Hyerczyk
Commodity Trading Advisor
May’s U.S. Non-Farm Payrolls rose by a paltry 69,000 in May while the unemployment rate climbed back up to 8.2 percent, sending stocks and commodities plunging, but giving a boost to the U.S. Dollar and Treasuries. A rise in the labor participation rate by 0.2 percent to 63.8 was the reason behind the uptick in the unemployment rate. The gain of 69,000 jobs, however, missed the pre-report consensus estimate of 150,000 jobs.
U.S. stocks and global commodities sold off sharply immediately after the release of the report. Many of these markets had already been in downtrends, making Friday’s moves appear to be the acceleration phase of the investment cycle. Several markets are trading at or rapidly approaching major retracement areas that could be the pivot zones that decide whether they will continue to drop or attract enough value-based buyers to turn the tide back up.
Apple Inc. (AAPL) is one stock that is currently trading at or near a make or break price level. Based on the short-term range of $644.00 to $528.66, this stock is currently trading near a significant retracement zone at $586.33 to $599.94. In addition, downtrending Gann angle resistance from the $644.00 top is at $580.00.
The combination of these technical factors could make this price area an important resistance zone. The market will have to overcome this area to give it a bullish appearance, but as of June 1, this area is looking more like a rally killer.
The weekly main trend is still up, but this uptrend is being threatened. Officially, the main trend will turn down on the weekly chart when the main bottom at $528.66 is violated. If this occurs, then $581.50 will become the new main top. This trading action could lead to an acceleration to the downside.
Swing theory also indicates that since the first break from the top was $115.34 in 5 weeks then from $581.50, Apple Inc. may be trading at $466.16 the week-ending July 6.
For those looking for the next major value zone, the focus should be on the 50 to 61.8 percent retracement area created by the June 2010 bottom to the April 2012 top. This range has been defined as $477.5 to $437.90. Our swing chart downside target of $466.16 falls inside of this retracement zone.
Apple Inc. will be watched carefully due to the strength of its fundamentals and its long-term outlook. If technical support levels begin to fail then this will be a sign that outside factors are having a bigger influence on the price of the stock than the financial statements. The key at this time is to determine where the value lies for this stock. In addition, whether you are an investor or a trader, it is important to have a game plan should the trend turn lower.
The Weekly June NASDAQ futures contract has already completed its test of the 2791.50 top with the formation of a secondary lower top at 2753.00. Apple Inc. is currently at this point in the swing cycle. With this futures contract currently in the acceleration phase, selling pressure is likely to increase, turning up the heat on the weaker long investors.
As these investors pare their positions, the June NASDAQ contract should continue to fall until value-based buyers begin to step in. Based on the August bottom at 1989.00 to the April top at 2791.50, a value zone has formed at 2390.25 to 2295.56. This is the retracement area that is likely to attract value-based buyers.
Price is usually the most important factor for investors, however, traders typically focus on momentum. So while a test of this retracement zone may appear to be a “bargain” compared to where prices were two months ago, the market may not stop in this area if downside momentum continues to be strong. Nonetheless, I don’t think the NASDAQ will begin the bottoming process until this retracement zone is tested.
The challenge at this time for investors is determining whether to react to the action in the individual stocks or the stock index. What also needs to be determined is whether the “dog is wagging its tail” or “is the tail wagging the dog”?
In other words, will the weakness in the NASDAQ futures contract continue to drag Apple Inc. lower or will Apple Inc. be able to stabilize enough to stop the slide in the broader index and start the bottoming process.
Apple’s relative strength is very strong; however, if owning stocks falls out of favor with investors, even the best fundamentals will not stop this stock from retracing at least 50% of its June 2010 to its April 2012 rally.