When we first looked at German software giant SAP in early-December, 2021, the stock was trading at just under €115 a share. After closely examining its post-2002 uptrend, we concluded that it can “tumble 35% before the bulls return.” This prediction wasn’t rooted in the company’s fundamentals in any way. Instead, it was entirely based on the Elliott Wave structure we found on SAP ‘s weekly chart. Take another look at it below.
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The structure in question was the well-known five-wave impulse pattern, which we labeled (1)-(2)-(3)-(4)-(5). Wave (2) stood for the 2008 Financial Crisis, while wave (4) coincided with the Covid-19 panic of 2020. In between these two, one could recognize four lower degrees of the trend within wave (3). Wave (5) had completed the sequence at €143 in Q3 2020.
The Elliott Wave theory states that a three-wave correction in the other direction follows every impulse. “Three-wave” is the key word here, since SAP stock seemed to have drawn only two waves, marked (a) down and (b) up. It made sense to expect more weakness in wave (c), before the uptrend can resume. The top of the Dot-com bubble in the year 2000 looked like a natural support level around the €75 mark.
Less than a year later, in September of 2022, SAP dipped below €80 a share. And then, all of a sudden, the stock started rising just like Elliott Wave analysis had predicted. It is up by more than 50% over the past twelve months and currently sits just under €124. A single chart and an eye for patterns were enough to predict both the initial fall and the subsequent recovery.
On the other hand, we thought the price was going to touch the top of the dot-com bubble. The fact that it didn’t ought to tell us something. A fresh look at the even bigger picture reveals that an even larger impulse pattern has been in progress since at least the 1990s. The peak of the Dot-com bubble in 2000 marks its first wave I. The following crash stands for wave II.
Wave III lifted SAP stock to an all-time high of just over €143 in 2020. The following three-wave decline must then be wave IV. That’s why it didn’t touch the top of the Dot-com bubble – because the first and the fourth waves within an impulse must not overlap. If this count is correct, the current rally must be part of the fifth and final wave.
Once it is over, somewhere above the top of wave III, the same logic would apply. Every impulse is followed by a correction in the opposite direction. A notable bearish reversal should be expected near, say, €150-€160 a share. Furthermore, just like wave IV erased all of wave (5) of III, it makes sense for the upcoming correction to erase all of wave V. Assuming a reversal near €160, that’ll be a 50% plunge back to the €80 mark for SAP.
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