May 052012

The medium term outlook for UBS is for a move lower first followed by a significant rally. Let us look at the stock from an Elliott Wave perspective.

If you are a regular reader of my comments, you would know that I use the Elliott Wave principle to achieve my goals, which is to identify low-risk trading and investment opportunities. I am not stuck-up with a particular count, neither do I worry if others point out a different count. We all know that at any point in time, it is perfectly possible to come up with a variety of wave counts. What matters is whether one is able to pursue with his/her idea and translate it into an actionable plan. This is what WaveTimes has been attempting to do over the years, and this is the reason there are so many loyal readers of this blog. Now back to UBS.

We will start with a view that a five wave movement started in April 2007, when the stock was at $58.70.Wave 2 came nicely back to a 50% level.
After that the stock tumbled down (in a third wave) and came off in a new 5-wave sequence, covering a distance equal to 300% of wave 1. Observe the steepness of the third-of-the-third wave!
As the second wave was a simple correction, it was easy to anticpate a complex fouth wave. Elliott Wave Theory draws attention to this phenomenon of alternation in some detail.

As explained in my book Five Waves to Financial Freedom, it is usually possible to anticpate where the fifth wave will finish. However, when we look closely at the daily chart of UBS, we have to conclude that there exists a chance for an early end to the big five-wave sell off from 2007. This early target comes just below $9, but we should preserve a lot of cash to aggressively buy the stock if it actually reaches the ideal target around $5.40.

Should it reach this lower target, we will get a pretty aggressive recovery because the fifth wave within the fifth would have extended also, and when a fifth wave extends, the ensuing recovery will be very rapid indeed. This has been explained in numerous posts in Wave Times and it may be to your benefit to re-visit some of those old posts every now and then.

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