A Long Term Technical Look at Apple AAPL

Dec 4, 2008: 11:26 AM CST

What has Apple (AAPL) been up to lately?  Not much for long-term investors recently, but let’s take a moment to view the monthly, weekly, and daily charts and apply Elliott Wave combined with Fibonacci analysis to see where we’ve come, how we got there, and what might be in store for the future.

Apple (AAPL) Monthly Chart:

The monthly chart shows a potentially completed full Elliott Wave Impulse from start to finish – it’s extraordinarily rare to see such a chart like this develop at the structure we are now in real time.

Apple began its ascent in 2003 less than $10 per share to end late 2007 at $200 per share, creating massive wealth for shareholders during that period.  Unfortunately, the last year has seen shareholder equity lose over 50% in a stock many believed to be inevitable or unshakable.

Take a moment to view the Elliott Count and notice the Fifth Wave was a grossly extended wave that terminated at the $200 per share level.  Following that – and despite all the recent price destruction – the correction was an orderly “ABC” corrective phase as described by Elliott Wave Theory.

Notice how the final “C” wave is potentially terminating at the 61.8% large-scale Fibonacci retracement of the entire Elliott Impulse – that is distinctly significant and needs much greater attention.  We would expect the $81.50 per share level to hold as long-term support, meaning Apple may be showing a favorable risk/reward relationship now… but if the $80.00 price is broken, then all bullish bets are officially off the table.  We may have just hit a turning point in Apple stock.

Let’s zoom to the weekly chart for more insight.

Apple (AAPL) Weekly Chart:

I’ve shown the “ABC” corrective phase closer here.  Waves A and B were almost strightline affairs, with nary a correction to enter or manage risk.  They were rhythmic, almost syncronatic swings in price that led to the final violent C-Wave decline we’re in currently.

I’ve overlaid two Fibonacci retracement grids off recent price highs (to the $80 price low in November) and would like to note possible confluence areas.

Notice the $140 per share level serves as an important confluence level, which also would reflect resistance via the falling 50 week EMA – this would be a rather extreme target for price to reach short-term (suddenly), but if it broke above $140 per share, all bearish bets would be off the table and we could eventually look for a run up to test the $190 level or beyond – but that’s getting ahead of ourselves.

The more likely confluence target would be the $128 or so level, which corresponds to the 38.2% larger retracement (at $125.63) and $129.48 from the 50.0% retracement of the most recent price swing.  Keep an eye on that level as an initial bullish target (should $80 not be taken out any time soon).

Notice also that price would need to break above the falling 20 week EMA to test these levels, so beware of that potential resistance (and price target – magnet) zone.

We have a slight positive momentum divergence setting up from the October lows to the November lows, but it’s minimal as the price swings were quite narrow.  The fractal 4th Wave did touch the 38.2% retracement at $117 before falling to new lows – that is a significant development as well.

Finally, let’s step inside the “C Wave” decline to gather short-term insights and potential targets for swing-traders.

Apple (AAPL) Daily Chart:

Keep in mind that the $81.00 per share level corresponds with a large-scale Fibonacci retracement zone, so if this level is broken, all bullishness is off the table.

That being said, price is forming a distinct positive momentum divergence under the action, and we’re challenging the 20 day EMA and perhaps soon to challenge the falling 50 day EMA at $105.00 per share.  The falling 50 might be an ultra-shortterm target, while the breaking above the daily 50 EMA would trigger entries from the longer time frame participants/position traders (potentially).  Watch this area closely.

I have a little confusion as to how to interpret the current Elliott count, so your opinions are welcome, but the question now becomes “Have we already completed fractal wave 5 at the November 23rd lows… or are we about to begin fractal wave 3 or perhaps 5 back down to complete officially the wave 5 decline?”

What does that mean?  We see Waves 1-4 completed rather orderly (and I could have drawn in fractal waves for the 3rd wave) but Wave 5 has already completed (with the slight price lows) or is in the process of forming a final terminal wave down (meaning it has not completed yet).

Until we work off that condition, it might pay to be a little cautious and let price action prove itself over the next few days, but if the impulse is indeed complete, that would signal the potential birth of a new Elliott Impulse in Apple – meaning we’re at the genesis of a potential first wave in a larger impulse (reference the monthly chart above).

I’ll let you conduct your own analysis from here and make your trading decisions, but be aware that the price structure in Apple could get interesting quickly, and if anything, it serves as an excellent educational example of applying the Elliott Wave principle (and Fibonacci) to multiple time frames.

Corey Rosenbloom
Afraid to Trade.com

9 Comments

9 Responses to “A Long Term Technical Look at Apple AAPL”

  1. David Says:

    The blogosphere is alive talking about this one tonight.
    http://tradinggoddess.blogspot.com/2008/12/long-term-technical-look-at-apple-aapl.html

  2. J. Livermore Says:

    Lots of big, important charts have this pattern developing, in many different markets.

  3. Bond trader Says:

    I love your analysis and elliot discussions.

    I would love to fixed income covered in your updates every now and then (given its one of the biggest markets out there, i’m sure many will enjoy it)

  4. Corey Rosenbloom Says:

    David,

    I’m hoping to see more comments – AAPL is such a popular stock with many eyes upon it. I’d love to hear people’s opinions.

  5. Corey Rosenbloom Says:

    J,

    Indeed – it’s like we’ve hit a major inflection point across markets. The low just before Thanksgiving could prove to be ultra significant. I’m not sure it will be the absolute bottom, but I do think it will be at least an intermediate bottom. It feel like something is changing.

  6. Corey Rosenbloom Says:

    Bond,

    I’ll try to do so – I’m just flexing my newfound Elliott muscle and learning as much about it as I can. I have some great readers who have been helpful, both on the comment section and privately through email. I’m so amazed to find so many textbook patterns in numerous stocks/indexes/timeframes – and to think just over a year ago, I thought Elliott Wave was bunk. It was funny, many people told me I was an Elliottician at heart by the way I described the ‘swing nature’ of the market. I guess they were right.

  7. Anonymous Says:

    Hi Corey, I’m learning much about Elliot Wave from you and other sources. Now from a TA standpoint, looks like we’re in a descending triangle. We recently witness this on the SNp and saw a nice breakout which is now converging into a symmetrical triangle. If the market breaks, it will take apple down with it and potentially completing the breakdown of the descending triangle. This isn’t elliot wave, but it’s a differnet way to view the potential outcome. Keep up the great work.

  8. Corey Rosenbloom Says:

    Anon,

    Excellent point! I’m getting so caught up in Elliott that I’m letting basic chart analysis (pattern) slip past me! Indeed it is.

    Descending triangles have bearish expectations, but generally any triangle is foremost a consolidation pattern, and often precedes price expansion. I’ve learned – have the losses to show it – it’s best not to make decisions inside any triangle, but to wait for the price to break-out (ideally to retest the breakout point) for entry.

    You’re right. We try to piece the price puzzle together as best we can and find low-risk, high reward entries and continue to focus on edge.

    Either way, Apple – and the market – has to break one way or another out of the recent consolidation its in.

  9. David Says:

    Sometimes particularily in 5th waves symetricals can be a consolidation pattern for a reversal. That is my understanding. Thats why its risky to trade them before breakout especially in the apex in anticipation.

    Look at RIMM for example , it couldnt live outside below its triangle for long at all and didnt live up to its promise of a big breakdown. Its bypassed the “belly test” and popped out above.

    Online i have found little to support the idea of a triangle as a reversal pattern , or more particularily how to determin it.

    Another pattern possibility here BTW is an adam and eve double bottom ( ? )