Active-Trader - 5 Days of Fib - Day 1

Welcome back loyal blog readers.

A few posts back, blog reader Peter left a comment asking me to share the Fib lines for the major stocks I follow.  As you know, I consider the Fib lines to be the most significant stock market discovery in my 30 plus years of trading the markets.  That's because they appear to have actual predictive value in terms of future support and resistance.  How well do they work?  You be the judge, so let's get started.

First up is AAPL.  Apple is an easy one since there seems to be universal agreement that wave 1 began at the low of 310.5 set on 6/27/2011 and ended at $422.69 on 10/17/2011.  All the subsequent voodoo lines can be calculated based on those 2 values alone which is pretty cool when you think about the fact they happened over 3 years ago.  We have further evidence that these are good levels since AAPL topped out on at 705.07 on 9/17/12 just 5 points beyond the 61.8% extension of the 281% of the original move.

In terms of technical outlook, AAPL tried and failed a test of the 281% line at $594.33.  Apple also attempted a breakout above the $600 level this week and failed.  AAPL's recent split and capital return appears to be positioning it to join the Dow-30 and become a value stock.  Recall when that happened to MSFT and INTC, the stocks became dead money for years.  Bottom line is I love the Apple products and the company, but I don't love the stock and it may never exceed the all-time highs.

Next up is Amazon.  Wave 1 began at a price level of $166 back on 12/26/2011 and ended at $227 on 4/30/2012.  Since then, it made an all time high on 1/20/2014 at $408 just a few points short of the 423% extension of the original move at $413.  Since then it has been all down hill and the recent down move found support within 50 cents of the green tree line at 284.82.

At this point, Amazon stock is in a death dive.  I would not short it here, but I would wait for a rally up to the $300 level or even better at the fire line at $320.  I love AMZN as a company and as a customer since they have invented an entire category of on-line retailing as well as cloud services.  But I detest AMZN as a stock since for many years it has been run for growth only.  The management is interested only in growing sales, but not producing profits.  That works in the early stages of growth, but long terms investors want to see growth on both the top and the bottom line.  As a result, AMZN stock has been punished and with a 5-year earnings growth rate of -23.77 and a PE of 454 and no dividend yield - I expect much, much lower prices ahead.

Next up is AZO - Autozone. Wave 1 began at $342 on 1/7/2013 and ended at $402 on 4/8/2013.   Since then, the stock make a new all-time high at $561 just short of the 61.8% line of the 281% line.  Notice how the move up to the high was made in a single daily candle that went up and tagged the tree line and pulled back.  As of now AZO is hanging out just below the tree line at 525.92.

AZO appears to be in a bullish consolidation pattern.  Notice how the sell-off from the highs took about 8 weeks and found support at the lower snow line (not shown) just above the fire line at $497.72.  Since then the stock has been in 4 week recovery and appears in be trading up in advance of earnings coming up on 5/27/2014 before the open.  I don't know a damn thing about auto parts, but it appears to be a hot group with similar advances and solid fundamentals in related stocks AAP and ORLY.  As for AZO, it has a 5 year earnings growth rate of +23.66 and at a PE of 17.83 so the stock is under-priced because the growth rate exceeds the PE.

Next up is BIIB - Biogen Idec.  I have a history with this stock and have made some good money with it over the years.  Wave 1 began on 8/19/2013 at $203.09 and ended at $249.31 on 9/16/2013.  This is a complex pattern and I'm not as confident in this interpretation versus the other stocks covered so far.  Even so, values seem to be working as the 32.2% tree line extension of the 261.8% fire line formed resistance which has held except for a brief spike up to the all-time high of $358.89.  Since then, the stock has been in a serious slide, but has found substantial support at the 161.8% tree line.  Note how this value proved to be an area of support in the past, and appears to be holding support now.  Overall, however, the easy money has been made in BIIB and its going to be a tough slog making it out until new all time highs.  With a 5 year earnings growth rate at 20.88 and a PE of 35, the stock is not under-priced.

Last up for this go-round is Chipotle - CMG.   Wave 1 began at $233.82 back on 10/22/2012 and ended 5/20/2013.  I'm not 100% confident in this interpretation since the reaction after the top of wave 1 was very shallow. That said - and like the other examples - the levels do seem to hold real significance.

The all time high in CMG was set at $622.90 not far from the 261.8% fire line. Since then it has been all down hill, but note how prices found support at the 161.8% fire line at $469.74. Given the magnitude and steepness of the sell-off,  CMG is going to have a tough go of advancing to new all-time highs.  Fundamentally, CMG has a 5-year earnings growth rate of 28.7% and a PE of 46.95.  Based on that, I think it fairly priced, but certainly not under-priced.

This year has been a tough one so far for the Nasdaq and momentum players.  Of the stocks reviewed here, AZO is the most bullish and AMZN is the most bearish.   That's all for now, enjoy your day and use these fib levels to your advantage in your trading.