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AOL Time Warner

10/17/03 12:12:35 PM
by Koos van der Merwe

Every technician and investor knows the story of AOL Time Warner, so there is no need to repeat it here, but what of the future? Is it worth taking the chance and buying at these levels, hoping that a long-term hold will recover losses or capture outstanding profits?

Security:   TWX
Position:   Accumulate

Figure 1 shows a weekly chart with an Elliott Wave count that follows my first law of Wave theory, namely, the count calling an end to the bear trend for the share at 'C' "looks" right. However, from there on, it "looks" wrong. Wave 1 up and wave 2 correction down of a rising trend look correct, but wave 3 so far looks like a failure, if it is wave 3. This is my preferred count. My alternate count follows the falling stochastic oscillator, which is suggesting that it is an extended wave 2 falling in an a, b, c correction (green). Both scenarios appear to be likely with the alternate count on the weekly chart being the primary count. This could mean there is still more downside to the share price.

Figure 1: AOL Time Warner's weekly chart with my Elliott Wave count.
Graphic provided by: AdvancedGET.
On the daily chart however, there is a slightly different picture. I have included my weekly count on the chart and you can see my count in a rising market more clearly. However my preferred count now seems the more likely, with the present sideways trend forming a flag that could break upwards should the price test and break above the 16.89 level. However, this resistance is extremely strong as it is a triple top formation. Also note the daily stochastic oscillator is bullish.

Figure 2: Daily chart of AOL-Time Warner.

So we have two pictures. The weekly chart is bearish and the daily chart could be bullish, but not yet. I will watch the daily chart for a breakout above 16.89, and if this is confirmed by the weekly chart, then I would be a buyer, and for the long-term. I would know the trend is a weekly wave 3 up with a possible minimum target of 23.64.

This target is derived from the following: Wave 1 = 8.40 (17.10 - 8.70). 8.40 x 1.618 = 13.59 + wave 2 bottom at 10.05 = $23.64.

Of course, this figure need not necessarily be the top of wave 3, but it is a guide.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 10/18/03Rank: 5Comment: I find your articles posted on this web site to be very informative and helpful. I am relatively new to technical analysts and find it to be confusing at times. Where would you suggest I might start? Thanks, Earl

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