If you think this year’s decline in the S&P 500 is bad, wait to see the one in F5 stock. Shares of the cybersecurity company closed at $140 last week, down 43.8% from their $249 record. April 27th was especially unpleasant to F5 shareholders as the price opened with an 11% gap to the downside after the company slashed its 2022 revenue outlook.
There is a well-known trading strategy claiming that the market doesn’t like gaps and usually fills them up quickly. So far, this hasn’t been the case in FFIV, which just kept falling over the following six months. So instead of simply buying bearish gaps and selling the bullish ones, we prefer a more sophisticated approach. Elliott Wave analysis.
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The chart above shows that the decline from $249 to $135 looks like a textbook five-wave impulse. The pattern is marked 1-2-3-4-5 in wave (A). That April 27th downside gap occurred right in the middle of wave 3. Wave 4 is a clear expanding flat correction, while wave 5 is very similar to an expanding ending diagonal.
The Elliott Wave rules state that a three-wave correction in the other direction follows every impulse. So, if this count is correct, we can prepare for a bullish reversal and a notable recovery in F5 stock. Wave (B) is likely to reach the $190-$200 resistance area, before the bears drag FFIV below $130 in wave (C). In our opinion, investors should view the upcoming recovery as a chance to leave.
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