AAPL, AMZN And IBM: Price & Time

Yesterday, Mark asked:

"Concerning the H&S pattern going back to Oct '07,if the supply is worked off,what is the expectation of a time frame for this to occur and is it related to the time it took for the original pattern to form?"

Very good question, Mark. There isn't any hard and fast rule about that since it's an "unknown," as far as who is doing what, and why they're doing it. We have to try to give it our best assessment, much as we do with things like sentiment.

For example, a day or two before the March low of SPX 666, the American Association of Individual Investors sentiment was at a generational extreme (20-25 years). On something like that, we have to figure that we're in for a sizeable rally, but how many would guess that we'd rally over 260 SPX points in under two months' time?

A lot depends on what the charts look like, as we often discuss. How good is the base? How thick is resistance? What was the nature of the decline into the bottom, etc.? We had some nice looking charts coming out of the March low, and that helped to propel the rally.

In the GDX chart that we looked at yesterday (Chart #2), we know that we've got a very nice nine-month base, but we also know that we've got an eleven-month H&S Top "overhang" just above current prices.

"The more distant in time that resistance exists, the less resistance it becomes." If the resistance were from just three months ago, we could expect a good bit of head banging between Bulls and Bears as price tried to move higher. If resistance were from three years ago, the Bulls should have a much easier time moving price higher. A lot of the overhead supply would have been worked off during three year period, with many players giving up and throwing in.

Let's look at a few examples of things that we want to consider regarding price and time:


AAPL had two Bullish patterns in place, prior to its late March breakout. The second one, starting at Black #1, was the Bullish Ascending Triangle that formed over 3½ months.

The decline from the Summer, 2008 was pretty much a waterfall affair, so there wasn't months and months of price congestion on the way down. When the Ascending Triangle completed, it was as though an auctioneer banged his gavel, and asked "All done?" That chart looked very solid, and AAPL rallied sharply and the target got MADE in just over 1 month's time, or roughly 38.2% of the time that it took for the Ascending Triangle to form.

That's the sort of thing that I've observed when a chart looks like this one. Targets can be "expected" to get MADE between 38.2% - 61.8% of the time that it took for the pattern(s) to form, paricularly when we've got multiple patterns, or "nested" patterns (smaller patterns "nested" within a larger pattern).

By the way, since the rally in AAPL to 133.50 was pretty much parabolic, just as the decline from the Summer, 2008 was a waterfall, the current selloff again has that waterfall aspect to it. There wasn't any base-building during the rally to provide support on a selloff, so it's come off rather sharply.

Now, let's look at a chart that wasn't so rock solid, as far as a base was concerned:

AMZN had formed a nice Cup & Handle-looking pattern prior to the release of January earnings. The bottom should be more rounded to be a Cup & Handle, but we won't quibble. The pattern was only of three months' duration, and because of the deep move down to the low of the pattern, the target of 82.24 looked a bit lofty, especially if we looked for it to get MADE in 38.2%-61.8% of the time that it took for the pattern to form.

What helped this chart, structurally, was the Bull Flag (in purple) that formed from early February to early March. That was a decent little base from which to launch the rally to the target, and the Bull Flag target of 72.38 got MADE in only 28.6% of the time that it took to form.

The Cup & Handle target, however, got a little long in the tooth in getting MADE, hampered by the intervening Bearish Wolfe Wave (pattern in red). That bearish target got MADE, then AMZN went higher to the 82.24 target, which took almost the same amount of time as it took for the pattern to form. Just under three months' time, on April 24.

Interestingly, that day was the local high in the stock, which is why I often say, "Take profits, or at least 'some' profits when targets get MADE." Stocks don't automatically reverse at a target, but often they do at least take a breather. Another example of that...the local high in APPL was three days after the target of 127.39 got MADE.

Finally, a strange one...


...IBM formed a Bullish Inverse H&S pattern between mid-October and the end of 2008, so the pattern was only of 2½ months' duration. The neckline had a very severe downward slope and was "suspect," but Ms. Market confirmed the validity of the pattern by successfully retesting the neckline in mid-January, and the stock got sent higher.

There was an intervening Bearish pattern, the Bearish Rising Wedge, in February. That downside target got MADE, but the Bullish Inverse H&S target of 106.45 still was IN PLAY since the low of the Right Shoulder 79.92 never got taken down.

IBM then formed a "W"-Bottom, or Double Bottom (synonymous) and that target of 103.32 got MADE, but it took 23 days to get there. The pattern formed over just 21 days, so the target to longer to get MADE than it took for the pattern to form.

Finally, on May 4, the Bullish Inverse H&S target of 106.45 got MADE, over four months after the breakout of a pattern that took only 2½ months to form! That really isn't so surprising, though, given the fact that the pattern was "sloppy" with the severe down-sloping neckline and the intervening Bearish Rising Wedge pattern. This is a good example of "How good is the chart?" Not that great, but the "proof is in the puddin'. The bullish targets did get MADE, even though both of them were "late."

Sorry for the long-winded answer to your question, but I wanted to show you some examples of why there isn't any pat formula for calculating price and time that "always" works.