STRATEGIES

These two market leading stocks have corrected more sharply than the overall market from their September highs and MoneyShow’s Tom Aspray takes a critical look to see if either is now ready to turn around.

The passing of Greece’s austerity bill fulfills the main conditions for them to receive their next payment but the Eurozone finance ministers do not yet seem convinced. Clearing this hurdle may help stem the selling in the stock market. The futures are up slightly in early Monday trading. With banks and the bond market closed on Monday trading is likely to be light.

With less than two weeks before Black Friday many are trying to balance their fear of the fiscal cliff with the surprisingly upbeat attitude of the consumer as we enter the holiday buying season. The consumer sentiment has continued to improve since August and November’s mid-month reading was a new five year high.

The latest data on retail sales is out Wednesday and after three months of solid gains a slight decline is forecast by most economists. More importantly investors are trying to assess how the holiday season buying will impact Apple, Inc. (AAPL) and Amazon.com, Inc. (AMZN) as both have dropped sharply from their September highs.

Apple, Inc. (AAPL) is down 22.4% from its September high, while Amazon.com, Inc. (AMZN) has lost 14.3%. This is much worse that the 6.6% drop in the Spyder Trust (SPY). For the year however AAPL is still up 36.4% while AMZN has gained 30.7% as both have done much better that the 11.7% gain in the SPY.

These two stocks could provide the spark for a year-end rebound in the badly beaten down Nasdaq 100. Both are now approaching important levels of support but are there any signs that the worst of the selling is over?

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Chart Analysis: Apple, Inc. (AAPL) has declined for seven weeks in a row and closed last week just above the weekly starc- band at $540. The 38.2% Fibonacci support at $554.66 was violated last week.

  • This makes the next Fibonacci target at $508.33, which is the 50% support level calculated from the 2011 low at $310.50.

  • For November the monthly starc- band is at $507.30.

  • The trend line support from the 2011 and early 2012 highs, line a, is now being tested.

  • The weekly relative performance or RS analysis did make a new high with prices in September but then violated its WMA and the uptrend, line b.

  • The monthly RS line (not shown) is still above its WMA.

  • Volume was especially heavy last week at 131 million shares as the OBV has broken support (line c) that goes back to early 2012.

  • The OBV is also well below its WMA.

The severity of the decline in Apple, Inc. (AAPL) is more evident on the daily chart as it closed below the daily starc- band last Thursday. Since early October it has stayed below its 20-day EMA, which is now at $598.

  • The daily chart shows that the support at $570, line d, was broken last week.

  • This corresponded to the key support in the rally from the May 2012 lows and should now be a first key level of resistance.

  • There is further resistance in the $590-$600 area.

  • The daily relative performance did form a negative divergence, line e, at the September high of $705.07.

  • The more important support for the relative performance at line f was broken on October 18.

  • The RS line is still acting weak as it is well below its declining WMA.

  • The daily OBV also turned negative by the start of October as it has stayed below its WMA.

  • The OBV has also broken support, line h, that goes back to the May lows.

NEXT PAGE: Is a Year-End Rally in the Cards?

Tickers Mentioned: AAPL, AMZN, SPY