Always consider hidden risks
APPLE Correlation Technicals - Correlation Risks Back into the Danger Zone ? $AAPL #aapl
May 17 ( From TradingView )
May 17: Correlation Risks Back into the Danger Zone ?
One thing that keep me cautious lately: the correlation factor.
I wrote a few times last week that the other technical factor that surprise
me a lot here is that we have been above 0.75 on the correlation factor
between the SP500 Index and Apple Shares since April 30;
Simply said, Apple behave like the market...
It is not unusual for the correlation getting over 0.75 but a lot unusual to stay
over 0.75 that long. The longer is stays above, the riskier the market become.
Correlation Risks is Increasing when:
It will be into the Danger Zone when Correlation number with the SP500 when will be back below the 0.75 treshold level.
On April 30, It did reach 0.79 and rising slowly on Correlation with the SP500 to close at 0.97 on May 15, so still far from the critical level of 0.75 but worth noticing. So 12 days above the 0.75 threshold.
Over the past year, having a long period of correlation staying above 0.75 happened only 4 times.
It first reached over 0.75 on December 10 2014 : Since then, it stayed above for 12 consecutive days, and prior to that, It then reached over 0.75 on October 16 2014 and stayed above for 17 consecutive days. one of the longest ever in history. Before that, It reached over 0.75 on August 12 2014 and stayed above for 11 consecutive days. And finally, It reached over 0.75 on May 23 2014 and stayed above for 13 consecutive days.( See chart below ).
On those 4 times, 3 were bearish and only 1 a bull move and most of them near previous turnaround of SP500.
So in Summary
Date Number of days above 0.75 Price when 0.75 triggered Highest price - 10 days Lowest Price 10 days
Dec 10 12 113.91 113.92 104.63
Oct 16 17 109.01 117.57 108.67
Aug 12 11 102.13 103.74 96.14
May 23 13 92.29 92.75 90.36
( See chart below, vertical amber lines ).
ONLY when I ll see correlation getting under 0.75 in the next few trading sessions that we will have to be very carefull as a huge swing in price will be under way.
More explanation of the Correlation process below...
I started to analyze Apple shares in a complete different way using correlation with the sector ( Taking the XLK - Technology Select Sector SPDR as proxy ) and with the SP500 Index on the other side...
Three main observations emerge from the correlation approach:
1) Correlation between Apple Shares and XLK and SP500 are very often the
same - see chart below.
It tend to peak at the same time and bottoming
at the same most of the time.
2) When correlation is high, the risk is a slippage in the price action of Apple
Shares - see chart below.
3) When correlation is low, usually a bullish price action is foreseen for Apple
Shares - see chart below.
SP500 Index ( SPX )
( Blue Area )
Apple Shares and
XLK - Technology Select Sector SPDR
( Grey Area )
In fact, on the price action, if we do exclude the peak price coming from the last Earning release, we are stuck within a Big Channel - See chart above - Red Trendlines
And that Big Channel specific levels are for Monday: 123.70 as support and 130.98 as resistance.
The other factor worth mentioning is the historical low Volatility as shown by the chart below.
Apple Shares Volatility VIX from CBOE
In fact, it is the lowest Volatility on Apple Shares since November 2014.
Volatility closed on May 15 at 23.20, well below it s 200 DMA at 29.53. and Relative Volatility closed at 1.87% last Friday, slightly below its 200 DMA at 1.89%.
So this week, I will follow the usual weekly straddle ( maturing May 22 ).
The Weekly May 22 129 Straddle ( Long Call and Long Put ) closed last Friday at $2.64.
So all that to say that for me, it is crucial that we stay on a daily closing above the 50 DMA ( Day Moving Average ) now at $126.56. Failing to do so could bring more technicians to sell on that factor and reach the $123 handle pretty quick.
So expect some quite Volatility for the next few trading sessions.
Market will remain choppy and tough to trade.
Stay tuned as I will update you in the Daily as usual for specific trading levels on Apple Shares...