We wrote about Mid-America Apartment Communities on one of the last trading days of 2022. The S&P 500 index had bounced up sharply two months ago and there were high hopes for MAA stock, as well. Alas, a rally in the benchmark indices doesn’t necessarily translate into a rally in every single stock. This is especially true in the age of the Magnificent Seven, the biggest of Big Tech companies, which completely stole the show this year.
While we turned bullish on the S&P 500 as early as October, 2022, we weren’t feeling so optimistic about Mid-America Apartment ‘s prospects. The company’s revenue and funds from operations rose by 13.6% and 18.3% in 2022, respectively, and seem on schedule to climb again in 2023. So the reason for our pessimism had nothing to do with the fundamentals of the business. Instead, it was entirely based on the weekly and 4-hour charts of MAA stock, the latter of which is shown below.
This chart was shared with readers on December 27th, 2022. The stock was up roughly 10% from the low at $141, but the structure of the preceding decline suggested that the bears weren’t done yet. The drop from $232 looked like a textbook five-wave impulse pattern, labeled (1)-(2)-(3)-(4)-(5). The five sub-waves of (1), (3) and (5) were also visible. The corrective wave (2) had ended shortly after touching the 61.8% Fibonacci resistance level.
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The Elliott Wave theory states that a three-wave correction in the opposite direction follows every impulse before the trend can resume. An impulse in wave A implied that a corrective recovery in wave B was in progress, “before the bears can return in wave C towards $110.” Earlier this month, Mid-America Apartment stock fell to $115.56, down more than 50% from its late-2021 record.
We thought the bulls can at least approach the resistance of wave (4) near $190. They turned out to be weaker than expected. The best they did was $176 in wave (c) of B. From then on, 2023 was just as bad as the year before, down 21.2% YTD. Can Mid-America Apartment stock finally turn the corner in 2024?
Wave C is supposed to evolve either into another impulse or into an ending diagonal. Right now, it is neither. Our base case scenario, shown above, is the one where wave C is a five-wave impulse. Waves (1), (2) and (3) seem to be in place already. This means waves (4) up and (5) down have yet to develop, before the bulls can finally return.
In terms of price, wave (5) can easily be imagined to reach the $100 mark, although its exact length is impossible to predict. No-one really knows how deeply into double digit territory can Mid-America Apartment stock plunge in the case of a recession next year. The points is that the bears are probably not finished with MAA just yet.
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