Similarly to the market at large, Alphabet stock felt the tremors caused by the coronavirus panic. The Google parent’s share price fell from $1531 to $1009 between February 19th and March 23rd. One of the biggest and strongest companies in the world lost 34% of its value in a little over a month.
However, thanks mostly to the Fed’s actions, the market rebounded just as quickly. The S&P 500 and the DJIA are both up by over 34% from the March lows. Alphabet’s recovery has been even stronger with the stock up 39.4% in the past two months.
This brings one question to mind: how high can the stock go from here? Let’s take a look at GOOGL’s weekly chart and see if the Elliott Wave principle can help us find the answer.
The chart reveals the stock’s entire progress since the company went public in 2004. The structure of the rally looks like an almost complete five-wave impulse pattern. It is labeled I-II-III-IV-V, where wave V is still in progress as of this writing.
Four smaller degrees of the trend are visible within the structure of wave III. First, wave III is labeled (1)-(2)-(3)-(4)-(5). Then, the sub-waves of wave (3) are marked as 1-2-3-4-5. Going further into the details, we see that wave 3 consists of another impulse, labeled (i)-(ii)-(iii)-(iv)-(v). And finally, there is a clear i-ii-iii-iv-v in wave (iii).
Not Much Left of Alphabet ‘s post-IPO Uptrend
The coronavirus selloff fits in the position of wave IV. It is interesting to notice that wave IV appears to have ended precisely at the 38.2% Fibonacci level, where fourth waves usually terminate. This brings us to wave V, which can be expected to reach a new all-time high.
If this count is correct, Alphabet can keep marching on towards roughly $1700 a share. The problem is that according to the Elliott Wave theory, a three-wave correction follows every impulse. This means that instead of celebrating the new records, investors should prepare for a bearish reversal.
The anticipated decline has the potential to erase all of wave V’s gains and drag the stock back to the support of wave IV near $1000. In other words, the bulls can still add another ~20% from here, but a 40% drop might be around the corner.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!