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FANGMAN Elliott Wave Review - Part 4: Alphabet

By Dr. Arnout ter Schure Market OverviewJun 29, 2020 03:37PM ET
www.investing.com/analysis/fangman-elliott-wave-review--part-4-google-200529203
FANGMAN Elliott Wave Review - Part 4: Alphabet
By Dr. Arnout ter Schure   |  Jun 29, 2020 03:37PM ET
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Last week I reviewed Apple, Microsoft and Amazon using Elliott Wave Theory (EWT).

See my articles here:
Apple
Microsoft
Amazon

Of the seven most important stocks of the current market (Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN) and NVIDIA (NASDAQ:NVDA)), the next to review is Alphabet as it has the 4 th largest market cap: $945 billion. The first under $1 trillion.

The daily chart in Figure 1 below shows the EWT count since the February high: Blue Primary Wave-III. The March crash subdivided in three clear waves: black a, b, c, and wave-c was almost exactly 1.618x a. Picture-perfect. Who said EWT and Fibonacci do not work?

Figure 1

Since the infamous March 23 low, which I have labelled as primary Wave-IV, I can count five waves up may have completed (blue V?), but Alphabet could decide to add one more wave-5 to its tally. Today's low was then wave-4 of a possible – in EWT terms – expanded flat ( wave c>b=a). Wave-5 can then target as high as around $1,565 for a classic 5=1 relationship, but 5th waves can also stall at the 0.618x extension, which in this case would target $1,485-ish. TBD.

For now, we must content with a picture-perfect gap fill last week (blue horizontal arrow) on a significant negative divergence of the technical indicators.

Besides, all the technical indicators are still on a sell signal.

Where does that leave Alphabet in the bigger picture?

Figure 2 below shows the monthly timeframe chart with my preferred EWT count.

Figure 2

Unlike the three tech stocks reviewed prior (Apple, Amazon and Microsoft), Alphabet didn't start trading until mid-2004. But like all stocks, it also took a hit during the 2007-2009 market crash. I have labelled that high and low as (blue) Primary I, II. Since the price low made in 2009, Alphabet has been on a tear, up until early 2018. It then went mostly sideways for many months ($1200->$975->$1275->$975->$1300->$1025) before launching to the February 2020 all-time high (ATH). That launch was technically a fake breakout, as price swiftly returned to the scene of the crime: $1,000. I have shown this pattern for Apple, Microsoft and Amazon: big run-up, sideways for many months, breakout.

If my EWT count is correct, then the March low was primary-IV, and Alphabet is now completing Primary-V of a large Cylce-1 wave. Two comes after one, so a Cycle-2 should be expected to ideally $400-600(!).

Note, as was observed for the other three stocks, the negative divergence on the monthly technical indicators: less momentum, less money flowing into the stock while price is moving higher. Although divergence is only divergence until it is not, it must be noted. It is often a forewarning of worse things to come. Just like the divergences on the daily chart forewarned of last week's sell-off. If divergences on the daily chart can foretell of an 8.5% drop in price, imagine what such divergences on the monthly chart can do.

For now, the bulls' short-term hope (days) is for the last wave-5 to around $1,485-1,565 before the next more significant correction kicks in. The bulls' long-term dream (months) is that this correction is not a Cycle-2 wave causing a 50-60% haircut but only a major-2 wave. Major-2 will then ideally stall around $1,230 +/- 30 before wave-3 to new ATHs kicks in. TBD.

For now, know your timeframe for trading and investing, and it would not hurt to re-assess the potential upside reward versus downside risk. Nobody got poor from being careful, cautious and conservative in the markets. Or, as Warren Buffet once said, "I got rich because I always sell too early."

FANGMAN Elliott Wave Review - Part 4: Alphabet
 

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FANGMAN Elliott Wave Review - Part 4: Alphabet

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Comments (3)
John Noronha
John Noronha Jun 30, 2020 1:07AM ET
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Wave IV is too insignificant both in terms of duration as well as magnitude. (should be at minimum 10% in duration, and typically from 38 to 62% and more in magnitude). In all probability wave III is likely to continue until it peaks. (perhaps in Feb 2021?)
Dr. Arnout ter Schure
Dr. Arnout ter Schure Jun 30, 2020 1:07AM ET
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yes and no. 4th waves are typically between 23.60-38.30% retrace of the prior 3rd wave. time is not as important, price is the final arbiter. always. at the March 23 low GOOGL came within $20 of the 38.20% retrace of the 2009 low to the 2020 high ($1009 vs $990). That's good enough. Can it still be part of wave-III? Possible, but then you should also provide the chart with that option. In that case, the February high was wave-3 of III and the March low wave-4 of III and now wave-5 of III is wrapping up. Thus another serious decline in around the corner regardless.
Flo Seifer
Flo Seifer Jun 30, 2020 12:11AM ET
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Interesting indeed. On figure 3 is wave 3 actually realistic in regards to the time-frame? It looks way too long compared to the others.If your count is correct though it does look really scarry.I'm a financial advisor but unfortunately not a trader so tough to prevent this. I'm honestly afraid for my customers
Dr. Arnout ter Schure
Dr. Arnout ter Schure Jun 30, 2020 12:11AM ET
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ys, 3rd waves are almost always the longest waves.
Andrey Rak
Andrey Rak Jun 29, 2020 7:06PM ET
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Thank you, alredy wayting for next articles.
 
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