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A Perfect Count For Aruba

11/01/11 10:15:08 AM
by Koos van der Merwe

It is very satisfying when a stock follows a perfect Elliott wave count.

Security:   ARUN
Position:   Sell

Aruba Networks (ARUN) completed a perfect Elliott wave count on August 19, 2011, within the fourth wave of lesser degree, as shown on the weekly chart. From that date, it rose to a high of $25.55.

Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart of ARUN and shows how the share price started its wave count from a low of $1.98 on November 2008. The share price rose steadily in a perfect Elliott wave count to reach a high of $36.52 by May 6, 2011. It then dropped in an ABC correction to a low of $16.39 by August 19, 2011, which was within the fourth wave of lesser degree as shown on the chart. Note too how the relative strength index (RSI) moved into the buy zone and gave a buy signal on that date. The price has since moved up, testing the 61.8% retracement level of the fall of wave C from $31.37 to $16.39. This does suggest that a wave 1 of a new bull market has been completed, and that we could see a correction down.

Graphic provided by: AdvancedGET.
Figure 2 is a daily chart of ARUN and shows the low of wave C at $16.20 and the rise in a wave 1 to $25.64. If this is indeed the high of wave 1, and the RSI at overbought levels is suggesting that this could indeed be the case, then we should see a fall to anyone of the Fibonacci levels shown. Wave 2s can retrace 100% of a wave 1, with a 72% retracement being the most common, as short-sellers believe the negative trend is continuing.

I would not be a buyer of ARUN at present levels, even though the share price could move higher. I will, however, wait for the share price to complete a wave 2 down, using the 14-period RSI to give me a buy signal. This will take the price into a wave 3 up, with excellent profits.

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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