Most of you probably know Apple is a huge weight in the Dow. Many people believe the Dow will go as Apple goes. The low today for Apple is 112.46 and for the Dow 16003.13. The Apple low in August was 92.00 which is 20% lower than today. The Dow drop from the top was 16% while Apple fell 31%. The correlation in terms of percentage move was approximately Dow=Apple*50%.
If that correlation continues and Apple retests its low at 92, then Apple will fall 20% with Dow falling 10-11%. A 10-11% Dow drop from 16000 lands at 14200-14400. That equates to the Dow year 2007 top at 14198. I arrived at that as the likely destination for the Dow in late October using other technical methods. Of course, the correlation could vary and Apple could do more than retest its August low, but I believe that to be another legitimate reason to expect Dow to retest 14200ish.
If Dow drop 10-11%, let's assume SPX will drop 9-10% (SPX has slightly outperformed Dow since the top and is not as over-weighted in Apple). That would lead to an SPX target of 1880-(170-188pts)=1690-1710. In addition to an Andrew's pitchfork line, bull market trend line from March 2009, Fib 1735 and the minimum historic retracement of previous all-time high breakouts among other things, we have Apple as a legitimate reason that SPX could test 1700ish and soon. SPX is performing worse than Dow the last couple days so my next SPX support at 1576/1600 is not out of the question, but I think Dow 14200 and SPX 1700 are good estimates based on behavior since summer.
Short-term, we got a small bounce at 1880. The drop from 1953 has gone 31pts down to 1922, 14pts up, 32pts down to 1903, 8pts up, 31pts down to 1880 and 10pts up. Are we going to a total of 9 waves lower to complete wave 3 of A? If so, 1891-31=1860 + 10=1870-31=1839. Then, wave 4 to backtest 1867/1880? Or perhaps we get an EDT to end wave 3 instead in the 1860s followed by a backtest of 1900. Then, wave 5ofA should take SPX down to 1828/1820 or even 1800. Either way, I still like an A wave bottom this week or next followed by a rally/consolidation into October OPEX and a final flush to 1700 in late October. Good fortune.
P.S. Update 540PM EST
SPY had a small BOW day. BOW days were not enough to hold up the market during the break of 2040, and they may not be enough on a break of 1867. But, it does add some support to the scenarios I've been laying out where SPX breaks 1867 probably trading down near 1828 or even 1800 and then rallies for a week or three before flushing to 1700...but I am only selling the rips, not buying the dips, until SPX hits 1735 or lower.
Max option pain for October 16th SPY OPEX appears to still be near 2000 but most other expirations are falling to 1950. Since September 18th and 30th appear to both be running away from max pain and since that usually only happens a couple months per year, I suspect monthly October max pain on the 16th will not runaway and thus SPX should rally up near 1950 around Oct 14-16.
Due to Oct 14-16 being more than 2 weeks away and due to my expectation that the next B-wave rally will not reach max option pain at 1950-2000 and due to my belief that max option pain will serve as a magnet this time on Oct 14-16 and due to my belief that bearish sentiment can only be held so long and due to my belief that SPX 1700 will be visited in October, I am beginning to wonder if SPX 1700ish will be visited earlier in October to allow time for a rocket rally to 1950ish. Well, it's something to keep in mind especially if 1867 breaks this week and then any subsequent rally cannot exceed a 50% retracement.
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