Investors who were brave or fortunate enough to buy Dell Technologies during the coronavirus panic of March 2020 must be very pleased with the results. The stock is up 338% from that bottom at $25.51 and closed at $111.63 yesterday.
For a profitable, growing and financially sound company like Dell, that surge is not a big surprise. The company made over $9B in free cash flow last year and with a market cap of $85B, it is by no means overvalued. Does this make it a good buy at current prices? Can the market present us with better entries soon, if only we wait a while?
Dell ‘s daily chart reveals the stock’s progress from the March 2020 bottom. As visible, the price’s path has taken the shape of a five-wave impulse, labeled 1-2-3-4-5. The five sub-waves of wave 3 can be traced, as well. If this count is correct, Dell is currently rising in its fifth and final wave.
The Elliott Wave theory states that a three-wave correction follows every impulse. In other word, once wave 5 is over, we can expect a retracement to drag the stock back to the wave 4 support level. Assuming a bearish reversal near ~$130, that would be a 30% drop back to $90 or less. The MACD indicator seems to confirm the negative outlook with a bearish divergence between waves 3 and 5. On the other hand, we think that Dell would be a real bargain once the wave cycle is complete.
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!