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Advanced Technical Analysis - AAPL

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Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

Summary:


Apple (AAPL:NASD) has had a great run from its April 2004 lows, advancing 176% in just over a year's time. Forgotten in that run was the fact that AAPL was in a clear bear trend from its 2000 peak of $75.18, declining 83% from March 2000 to April 2003. This 83% decline took the form of a 5 wave decline, suggesting that, once a bounce to alleviate the oversold condition that existed in April 2003 took place, that bearish trend could reassert itself.

The bounce from the April 2003 lows has taken the form of an ABC zigzag correction where the A wave (from April 2003 to the 9/3 peak at 23.32) is almost exactly the same size (%-wise) as the C wave (which took shape from the 12/22/03 lows to present). This A=C relationship is common within ABC zigzag corrections. Importantly, a nearly complete "5" wave advance from the lows in December 2003 has formed, with a Fibonacci target in the $35-36 area. Sentiment-wise, AAPL has 12 buys on the sell-side, 8 holds and 0 sells, while short interest, at 12mm shares, is down from May 2003's 18mm shares. Put/call ratios are some of the lowest they have been in the last year to boot. All-in then, the 176% bear market bounce in AAPL has attracted much optimism toward the shares.

Relative to our technical indictors, daily momentum is diverging on these new highs, suggesting a weakening advance. Daily Demark indicators may register in the next few sessions, though they are not necessary to have confidence in this larger bearish technical analysis. The price action over the last two months can be counted in a number of acceptable ways. Our most probable interpretation is that of a triangle 4th wave correction from the peak on 6/28 that ended at $30.35 on 8/17. If this is correct, it implies that our larger bearish educational analysis is the most probable as well (triangles take place in the next-to-last position of a pattern ending a larger degree move). As readers may recall, a move out of a triangle pattern usually travels the largest distance of the triangle correction. In this case, the 5th wave (of C) Fibonacci target is at $35.80. We would note that the larger wave C would equal wave A at $35.29. Thus, our $35-36 level would be the Fibonacci price target for the end of this entire bear market bounce from 2003 (not advice).

If this analysis is correct, prices need one more new high above the peak at $35.18 from 8/26 to complete the minor degree "5" waves up from the low on 8/17, which could then complete the larger bear market correction. Our technical conclusion then is this: the 5 wave impulsive move down from the 2000 peak to the 2003 bottom has now corrected in an upward zig zag correction that has retraced more than 50% of the decline and done so in a corrective fashion. Two Fibonacci targets for this advance take place within the $35-36 area and the short term "requires" another attempt at new highs above $35.18 that shows hourly Demark trend exhaustion indicators as well as hourly divergences against momentum.

No positions in stocks mentioned.

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