We made it pretty clear yesterday that we needed to keep a close eye on how the markets react to yesterday's selloff. So far this morning, we're hardly seeing signs of the type of snapback we need in order to confirm the markets are hunting for a bottom around current levels. No harm no foul as of yet, but we've still got the rest of today, tomorrow, and early next week. On the open this morning, the indexes mustered up a little buying strength but it was negated in short order with most of the major indexes sitting flat on the day as I type. We're seeing all kinds of whacky commentary coming out of the media as they try to magnify the uncertainty surrounding the fiscal cliff now that the elections are over. I even saw one article suggesting Apple's (AAPL) recent selloff is due to the Company's concerns over the possibility of tax hikes being a part of the fiscal cliff reform. Really? In my opinion, if we're going to be concerned about tax hikes, that's fine, but don't blame Apple's recent selloff on something as stupid as that. I'll get to Apple in a bit here. First, since the importance of identifying a bottom right now should be front and center, we thought we'd point your attention this morning to what happened in early June when the indexes nicely washed out the weak hands, only to move higher for the next four months. I've included a daily chart of the NDX here isolating that time period in early June when the indexes hit bottom after a pretty fierce two month selloff. As you can see, the downward move preceding the reversal was parabolic and volatility was extreme, which is why we continue to look for that same behavior right now as a potential clue for a reversal. You can see toward the very beginning of the chart, the NDX move sharply lower and reversed course all within a day and a half to erase the previous day's losses. That was the first signal, which was hopeful. Then, the second move (a modest pullback) was good to see but it was the third move that failed. In the best interest of Elliot Waves, we'll label the first big snapback day as A, the modest pullback B, and the third attempt to move higher C. A was good, B was logical, but C should have been a sharp move higher after the modest pullback, but what actually ended up happening was C was only a very short lived move to the upside, which sent the markets into another strong leg down and that's where the NDX finally found its bottom. For your technical prowess, that C move needed to have at least more than a single day of buying strength to suggest strong follow through, and it didn't. Now the next series of Elliot Waves that suggested the actual bottom was very similar to the first, however, the C move was the confirmation. I've labeled the series of events for this move in the chart here. A was the sharp move down, B was the modest pullback, but C was the confirmation with three strong days to the upside. Bingo. The reversal was confirmed. Yes, the NDX continued an extreme amount of volatility over the next month and a half, however, if you were willing to be patient and play the pullbacks, or simply entered into some ideas without being hyperactive at all, you probably picked up some pretty nice gains by the end of September. There's a couple of lessons here to keep with you going forward. First, chasing rallies didn't prove to be the best entries. Second, staying calm, opportunistic and unemotional may have allowed you to have the intestinal fortitude to step in when many investors were bailing. Those are good lessons no matter what you're looking at when it comes to technical analysis. Believe me, I'm not making this stuff up. This pattern is a very common and very popular pattern when individual stocks or indexes finally bottom out. Some call it a wash and rinse and others call it downside capitulation followed by a sharp reversal. Whatever you want to call it is fine, just know this is a very common pattern to look for with any idea. The bottom line is we got the capitulation yesterday, but the longer we go without the snapback move labeled A, then the less likely we're actually experiencing a bottom. So, we'll just have to wait and see what happens for the rest of the week and into next week. An Early Changing of the Tide? Comparing Apples to Overgrown Watermelons. Back to Apple (AAPL). I'm not going to spend a ton of time on this idea, but what I tell you here could possibly make you a ton of money when we look back a year from now. It's ultimately your call, however, I did wait until today for a reason because the stock I like per my commentary below has finally pulled back after days of moving higher. In my opinion, Apple's recent selloff could and should likely be attributed to a weakening product pipeline. The Street is always about what have you done for me lately? Although Apple has been the darling of Wall Street and consumers for a good 10 years now, and will likely be a darling of consumers for many years to come, it's all about growth when it comes to a stock. I think what we're seeing with Apple right now is a stock that has run into a strong growth headwind and that's never good for a stock's price going forward, hence the sharp move lower in recent weeks for AAPL. Just for the sake of argument, let's go all the way back to 1984, the year I actually graduated from High School. Steve Jobs introduced the first personal computer, the Macintosh. The MAC was amazing, innovative and revolutionary. Apple's Macintosh became the first commercially successful personal computer to feature a mouse and a graphical user interface rather than a command-line interface. The Apple II saw success through the end of the decade, though popularity dissipated in the 1990s as the personal computer market shifted toward the "Wintel" platform: IBM PC compatible machines running MS-DOS and Microsoft Windows. Once Windows took a foothold, Microsoft became the dominant player in the space. Is history repeating itself all over again? It's very possible. And, before I tell you why, don't think I'm an Apple hater or a Microsoft lover. I actually own an Iphone but work on a Windows Desktop, so there. Apple once again has been the initial innovators with their IPod, then the Iphone followed by the IPad. Incredible vision and world changing technology by the late Steve Jobs. What a genius. However, here comes Microsoft again. A stock actually that I've dismissed and called dead money for years now. However, have you seen their new Windows 8 operating system? Have you seen their new product, the Surface? Microsoft over the years has failed to deliver anything new or exciting for that matter, until now. The new Windows 8 operating system on the Surface now gives users pretty much everything offered by the IPad and more. The one big beef I've had with Apple products in recent years is it hasn't lend itself to the business user much at all. With the Windows 8 new operating system and the Surface, you now have the ability to do everything in the basic sense of the business world that you haven't really been able to do as well on an IPad. Now let's have a look at an overlay chart of AAPL and MSFT in recent days. AAPL is in red and MSFT is in green. See the divergence? Is this coincidence? I don't think so. In short, I think MSFT may FINALLY have something to build the stock's returns on a go-forward basis. What you're seeing in this chart is possibly the early signs of everything I mentioned above. Quite honestly, I never did imagine MSFT was ever going to come up with anything good again to rival Apple's dominance, but low and behold, never say never. I think MSFT would be an excellent addition now to anyone's long-term portfolios. It's low risk with tremendous potential upside. Wow, I never thought I'd be saying that, but when it comes to the markets, things can and do change. And by the way, an innovative resurgence by MSFT would do wonders for tech stocks in general going forward, and right now, tech stocks are definitely looking for something new to latch on to. Before you email us and tell us MSFT is a large cap not a small cap, and that we should focus exclusively on small caps. My answer to that is we'll focus on anything we believe can make you money. From the littlest of penny stocks, to the giant behemoths of MSFT. To us, it really doesn't matter. Have an excellent day!