Coca-Cola Company is considered to be one of those stocks you add to your portfolio to lessen its overall risk. With its modest volatility, the company’s stock is perceived as stable and relatively safe investment. With Coca-Cola currently hovering near all-time highs, it definitely looks like it. Trouble is that in the market environment, what it looks like is rarely what it actually is. The Elliott Wave Principle suggests Coca-Cola stock might lose its “safe investment” status soon. The logarithmic chart below explains why.
The monthly log chart shows KO’s development since the mid-1970s. As visible, the stock’s uptrend is a clear five-wave impulse from as low as 46 cents a share in October 1974 to as high as 47.13 dollars in April 2016.
The chart above gives us two reasons to believe Coca-Cola’s massive bull market is about to end. First, the Wave principle says that every impulse is followed by a correction in the opposite direction. This means that once wave V eventually ends, prices could be expected to drop significantly. The support level of wave IV is going to be the bears’ first target. In other words, it should not be a surprise if the stock plunges to the $20 mark in the years ahead.
And reason number two, the relative strength index is showing the typical bearish divergence between waves III and V of the impulse, suggesting the bulls are getting more and more exhausted with every cent they add to Cola-Cola’s valuation.
If this is the correct count, the company might lose nearly 60% of its value from now on. That is definitely not what you would expect from a stable and safe investment, right?
