Skip to Main Content

10/12/2022 |

Cestrian Capital Research Presents: Giving It The Old One Two

This is an image of the Trendspider and Cestrian Capital Research logos.

Giving It The Old One Two

Overlooking for a moment the pending end of the world, the economic collapse of America, the UK finally sliding back into the obscurity whence it came, Germany going bankrupt, nuclear war, and so on? Apple might be setting up for a run. Up, that is. Remember “up”? It’s a thing that happens when your long positions increase in value. Say that out loud to yourself a couple of times and try to retrieve the muscle memory.

OK. Here we go.

Now, most long setup ideas in recent days, weeks, months – heck, all year! – have ended in ignominy unless played short-term with a profit-taking order locked in, and a stop-loss to boot. And this idea is no different in our view. That said, the one good thing about skulking around down here at the lows is that you can place a sensible stop-loss – close enough to actually protect your capital but not so close that it will definitely be hunted by the Masters Of The Universe who live solely to feast on the misery of others.

AAPL, it should be said, if there was any reality about securities pricing, should not be sat at these levels. Just a few weeks ago, the thing was almost back at its high. Even though inflation is a gabillion % per month and that by the time the iPhone 27 comes around it will inevitably cost more than the last car you bought. Whilst offering only a slightly better camera and maybe a different kind of paintwork to the finish on your iPhone 14.

Fortunately, as any fule knows, securities prices are laws unto themselves, which is what technical analysis is for. Here we look at AAPL using TrendSpider’s Poly Line and Fibonacci tools. We chart out the larger degree using the white Poly Line and the red/green Fibonacci retracement and extension measures; then the current smaller degree using the yellow Poly Line and yellow Fibonacci retracement tools. We’ll show you the chart and then walk you through it. You can open a full-page version, here.

This is an image of fibonaccis and elliot waves on the AAPL chart.

So, here goes:

  • Wave 1 runs from the 2018 lows (remember, the last time the Fed tried to normalize rates?) to the pre-Covid highs – a move of some $47.
  • Wave 2, a relatively modest 0.618 retracement of Wave 1 – a $30/share-ish drop into the Covid lows – most everything else we cover delivered a 0.786 retrace into the same lows, so already AAPL was showing resilience.
  • Wave 3, a +$130/share move up, peaking a little above the 2.618 extension of Wave 1 – that’s consistent with behavior from the QQQ over the same period.
  • Wave 4, which if it has bottomed will have been a textbook 0.382-and-change retracement of that Wave 3, putting in a June low of $129

And here’s where it gets interesting. For AAPL to have started a Wave 5 up (and it may have done so since that Wave 4 retrace low is a good piece of evidence that the June low was the low), it first has to put in a smaller-degree Wave (i) up and Wave (ii) down. And it looks like it may have done so. The yellow Poly Line shows a move up off of the June lows – that’s the Wave (i) – and then a 0.786 retracement of that move to complete a Wave (ii). Now, this .786 retrace is a typical Wave (ii) low. Doesn’t mean it can’t go lower, does mean there’s a good chance it doesn’t. And if we get a smaller-degree Wave (iii) next? Then, first of all, there may be a short-term profit opportunity with the stock moving up to at least the August high (that’s 27% up from here) – and secondly, the stock may be in a larger-degree Wave 5 up which can take it to new all time highs and beyond.

So much for the upside.

But the downside down here can be protected nicely. A stop-loss below the June lows – in the $125 zip code, something like that – means that if were you to buy now, your downside is limited to around 10% but your near-term upside is at least 27% if we have this setup right … with maybe $185 (that’s the 100% extension of Wave (i)) available for a 35% upside. So, risk/reward is somewhere in the 2.5:1 to 3.5:1 range, for a highly liquid stock with superb fundamentals. That’s not a completely dumb idea from where we sit.

Cestrian Capital Research, Inc – 12 October 2022
For more great free content from Cestrian Capital Research, head to our website!

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.