Market headed for new lows? If so, AAPL will be a great buy!

I am going to take a risk and speculate that the market will soon make a new bear market low. I believe this will happen without a significant rally (i.e. staying below 875). I also think that if/when this drop occurs, it will not break the previous low by much (5-10% or so). Finally, I think AAPL will be an excellent stock to buy if this drop occurs as anticipated.

I last posted about the overall market here, and about AAPL here.

Above, I posted an Elliot Wave count for QQQQ which I find intriguing. From the '07 high, the market has declined in 3-waves to complete WaveA down (Nov. lows). Since then, the market has been correcting in WaveB which should unfold in 3-waves. I am considering the possibility that WaveB unfolds as an irregular flat, where Wave-b of WaveB slightly undercuts the WaveA low, and then rallies sharply for Wave-c. This wave would break above Wave-a (Jan. '09 high), tricking everyone into thinking a new bull market has started. This would complete the entire WaveB correction, and then the final leg of the bear market would start, bringing prices much lower in WaveC.

The key to this scenario is that Wave-b unfolds in 3-waves, as opposed to 5-waves. I think this could happen, as I'll explain in the next chart.

The 1h /NQ (NASDAQ futures) chart is displayed above. It looks like a triangle is forming to correct the recent drop from the Jan. '09 high. Triangles are often terminal, meaning that any subsequent downleg would end the downtrend. This fits with the 3-wave drop scenario for Wave-b mentioned above.

I'm showing the daily BKX chart to indicate that there should be more downside in the recent downtrend. Banks have led on the downside and I believe they have one more down-leg. Notice that they rallied in 3-waves from the Nov. '08 low, and then began downtrending. So far, 4 waves have unfolded, meaning the fifth wave is forthcoming. This could certainly be a strong drop (perhaps as low as the channel bottom), helping bring the rest of the market down quickly.

The Put/Call chart above indicates a high level of confidence (by retail traders, that is) that we will rally before continuing to drop. I am tempted to agree that we could see a rally to, say, 875 on SPX. However, the triangle scenario implies that we will not see this, and will instead drop as soon as Monday. I think the bullishness implied by the Put/Call chart makes this quick-drop scenario possible.

Finally, now that you've seen my reasoning for an imminent drop, take a look at the AAPL daily chart above. I believe it finished a multi-year 5-wave rally in May, and therefore should decline in an ABC correction. WaveA seems nearly complete, as there are 5-waves down from $192. Wave-5 certainly seems to be an ending diagonal that should lead to an intense rally once the upper trendline is broken. However, a closer look at the inner structure indicates that we could have one more drop to below $78 to complete the pattern. I have purchased a few shares around $90 in case the triangle is already complete, but if the market does drop and AAPL follows, I will get aggressively bullish around $75-80. Ending diagonals are super strong reversal patterns. Search this blog for "ending diagonal" and you'll see some incredible examples of what they can do.