Sandisk (SNDK)
(2/12/07)

We're looking at an opportunity being suggested in the wave patterns and sentiment trend for storage maker Sandisk.   Depending on how things play out, either a short term or intermediate term opportunity exists.  The 21-day Put/Call ratio in the stock is falling back from bearish readings, often a sign of a reversal in selling.

Looking at the stock's overall recovery trend from its bear market low of 4.31 in 2001, the wave pattern appears to have taken the form of a double zigzag.  If correct, then a set of ABC patterns would be developing from the stock's July 21 low of 37.34.  This is the key low for our risk.  SNDK traced out an impulse pattern to a high of 62.24 on October 16, and subsequently fell into a very clear 11-wave decline that reached a low of 38.89 on January 31.  A corrective decline against a previously impulsive advance indicates a new advance is most probable.  If our wave count is correct, then a Wave C rally lies ahead that should be tradable.  Assuming this to be a zigzag pattern, Waves A and C typically tend towards equivalence of length, which indicates a full retracement of the decline is possible.  Even so, we note the various layers of upside resistance along the way.  At 54.33, Waves A and C are related by 1.618.  The first significant layer of expected resistance occurs at the 44-45 area.  You can consider an entry with the stock at 40, using 37 as a stop, and limiting risk to here.

As an option play, the July 2007 $42.50 Call (symbol SWQGV) is currently selling for $3.80 with the Delta at 0.52.  

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