AAPL Elliott wave Forecast, Long and Short Term

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1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.


I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.


I Hope this helps,


Juan

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Here I am again. Time to make some money! Mad money (?). I would like to show you my short and long-term forecast on AAPL computer. This is a stock that I have followed carefully since the early 90's, and it has always been in my mind because it has proven to be a challange for the Elliottician in me.

I have done complete historical analysis, and found that for practical purposes, AAPL starts the current, long term chart in 1997, at the return of Steve Jobs as CEO of the company. The best fit for this period is a double three. For those of you who are new to the Elliott wave analysis, you have to realize that only through the understanding of the long-term chart can you understand where is the stock right now, and when should we expect the stock to go.


A double three is composed of 2 sequences of 3 wave (double-3) separated by a corrective series. The nomenclature for the series is WXY, where W and Y are the directional waves and X the corrective series.

From the chart above it may be inferred that "Y" is close to completion because the most target (trapezoid) not only has been met, it has been exceeded. The next step is to examine "Y" more carefully and verify that it is a completed series. Because the most likely count, based on my long-term analysis is a double three, we can the look at "Y" as a 3-wave series, for example, a zigzag. It may well be that the short-term analysis would not fit well with the long-term analysis, in which case our job as elliotticians become difficult. BUT we must try to fit a complete story from long-term to short term. Elliott theory has many ambiguities, and we are trying to eliminate the unlikely and place our bets in the most likely scenario.

The chart below is the highest rated count for AAPL. The highest rated does not necesarily means the best option, but the one with more coincidence of extreme points with a proposed series. In the case below, it proposes "Y" to be a double zigzag, in which case AAPL would be in wave "X" of that double zigzag and would be in preparation to rally some more.

Since we have to analyse this series in the context of the longer term count, we should ask the question: How well does this count fit the long-term count? if two counts don't fit well, we most ask, do I feel confident on either one enough to rule out the other? or, is there an alternative, lower rated count that would fit better with the longer term?
To me the answer is as follows: the intermediate-term count labeled "W" is itself a zigzag. Because the longer term "Y" is part of a 3-wave series, one could better label the "W" of the intermediate-term chart as the "Y" of the longer term chart, and see the pattern as concluded, and a major correction already underway.
However, should the intermediate-term wave develop as a double zigzag, there is nothing of significance to throw out the long-term count. Hence, we can leave the chart above as in the realm of the possible, but cautiously consider other options that may be more probable.

Given the action of the past few weeks, it is unlikely that AAPL's second portion of the intermediate-term double zigzag (wave y) would be underway now. In fact, the rally that started just before earnings looks more like a corrective series. If AAPL is indeed an intermediate-term double zigzag, we have to believe that the corrective wave "X" is still in progress, and that the recent downtrend is still in force, despite the distincitive "bounce" on late March, from a corrective series that started in January. Thus, this last chart above fits very well with the bounce and the resumed downtrend of the last week.

Thus, intermediate wave "X" is still in progress, and a second corrective period is about to begin, which could take a couple of months. Let's take a look at this proposed wave "X" in more detail, and see if we can establish narrower targets:

This count fits extremely well, although it is not the highest rated. In my counts, I like to see simetry betwen the components of any series and this count accomplished that very well. Altough I believe that the wave "W" here was a double zigzag, not a simple zigzag, these are often interchangeable, so the current count is quite acceptable. The rally to the low 70's during April and early may fits very well as a corrective rally. Thus, AAPL is currently in a new downtrend that should go lower, between $48 and $33. That would be an excellent bearish opportunity.

Before entering a trade, let's take a look at a conventional Technica Analysis and see if we can justify the entry of a bearish trade.

The oscillators (in this case I am displaying the Stochastis and the RSI) show me an oversold condition, so a bounce will be forthcoming. However, the stock is otherwise bearish. The stock is below the 50dMA and the Bollinger bands are expanding, suggesting a change in direction. The time to enter a bearish trade is approaching, but we could get a better price for our position if we calmly observe the bounce over the next few days. We could use the stochastics oscillator as an entry signal, once the bounce is completed. BUT I would like you to consider the Refined Elliott Oscillator, which is actually quite powerful, if you have the software in your computer. The weekly chart is also quite bearish:

the ADX shows an intertwined series that may conclude with a change to the downside. The Stochastics oscillator has given a sell signal after a failed rally, and the stock is moving below the 40wMA (or 200dMA). Thus, the conventional analysis tends to corroborate my perception that the proposed intermediate wave "X" is still in progress. All we have left to do is to find a good entry point, given the current oversold condition. Let's take a loog at the Refined Elliott Oscillator:

Note the hook formed during the last couple of days in the short-term oscillator (red line). This is a bullish signal that should be taken seriously. In any other circumstance, this would be a point of entry of a bullish trade. However, notice the long-term oscillator (blue line), it is currently below the breakeven point (0). This means that AAPL is in a downtrend. Unless that blue oscillator hooks above the "0" line, we MUST retain a bearish outlook. Once the red line bounces back and hooks down again, we may enter a bearish position. This should happen within a week or so. For now, we just let the bulls take charge for a while. Who knows, maybe in a week the outlook would be completely changed, it has been know to happen. We work with probabilities.

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Addendum, 5/24/06
Our friend Fortitude has sent me this chart of AAPL with some comments I am including below:


Fortitude said: Look how ADX (+ve) [Green line], has not gone as low as it has done [in the past]. That is a good sign. Look also at the wedge formation building too. I tend to think it is going up, but we will see whether the rising trend support line will be broken. My guess not, look at the doji. More likely up IMHO.

Juan's comments: The wedge formation, or triangle or pennant is very important indeed because it does resolve strongly one way or another. You have very wisely drawn the two trend lines. Today, AAPL seem to have found support on the up trend line and it may go test the down trend line (we shall see).

In Elliott parlance, a triangle or pennant is composed of 5 waves (abcde sequence). But it is only one of the possible scenarios. If the triangle is indeed the case, then AAPL has just made wave "c" of this 5 wave formation, and wave "d" will be shortly on its way to reach the downtrend line, below the high of early May. then wave "e" will travel toward the apix of the triangle you have drawn, eventually resolving to the UP side.

AAPL could still break out above the downtrend line, which will be quite bullish. We shall see.