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Apple Is Testing Support and Probably Trying to Bounce


Price wants to correct upward, but it shouldn't retest 2012 highs this year.

In late January, our firm mentioned that Apple (NASDAQ:AAPL) appeared to be finishing the first portion of its downward correction from the November 2012 high, and we showed why price should try to find support in the region between 405 and 445. Last week, Apple found support just above the ideal 415 level, and it is possible that the first downward slide is now finished. From here, we expect several months of corrective price action, which should take the stock in a net upward direction. The nature of the corrective pattern throughout the rest of the year may provide clues about whether to expect another major slide in 2014 or later, similar to the move we saw during the past seven months.

On the monthly candle chart, we see that APPL has fallen below the major channel line that had provided support for the three years following its 2009 low. The 50% expansion of the channel width, shown with the lower dashed line, should provide some impetus for a bounce if price falls that far. However, there are other important supports nearby that make a bounce from the current area a more attractive prospect.

Note also that the fall from last year's high appears to have taken a three-wave structure (or perhaps a more complex corrective structure), consistent with the first part of wave 4 according Elliott Wave methods. Note also that price is visiting an area near the prior fourth wave of lesser magnitude (i.e., wave [iv] inside wave 3). The price region near the prior, smaller fourth wave is an attractive place for the current larger wave 4 to halt, or at least to find an interruption.

The weekly candle chart shows some of the reasons to expect an attempt at a bounce from the present area. Price is testing near the lower boundaries of two major channels, shown in dark gray and light gray. Also, since November, price has stayed within the sharply downward-sloping Schiff channel shown with blue lines. Breaking upward past the Schiff channel boundary, currently near 455, could signal that a substantial bounce has begun.

The [b] wave we are expecting to see from here could be somewhat choppy on the weekly and monthly timeframes, but it is reasonable to predict that it should reach at least 500 before beginning an earnest attempt at sliding lower. It is also important to note that, from here, the rest of wave 4 could take a variety of forms, including the possibility of a time-consuming triangle. Price action in future months may help predict how the fourth wave will play out and whether it can be expected to test even lower than the current area sometime during the next two to three years.

This article originally appeared on Trading On The Mark.
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