close icon

Berkshire’s Double Divergence Spells Trouble

Berkshire Hathaway’s shareholders are not like the owners of other public companies. By following Warren Buffett’s long-term approach, most of them stay with the company in good times and bad, regardless of what the market is doing with the price of the stock. Nevertheless, it pays to be prepared.

The last time we wrote about Berkshire was on November 25th, 2016. Almost nine months ago, while the stock was trading slightly below $160 a share, Elliott Wave analysis suggested the bulls should be able to reach $170, only to complete the five-wave impulse pattern, which has been in progress since the low in 2009. According to the theory, every impulse is followed by a three-wave correction in the opposite direction.

BRK.B is already approaching the $180 mark, so obviously we underestimated the strength of the uptrend. But does this mean the overall outlook has changed and we should no longer expect a decline? The updated chart below might help us find out.

berkshire monthly elliott wave chart

The monthly chart of Berkshire stock shows that the entire advance since March 2009 still looks like a textbook impulse. Furthermore, the relative strength index shows the typical bearish divergence between waves (5) and (3), indicating the bulls are slowly but surely running out of power.

Usually, the negative phase of the cycle drags the price back to the support area of the fourth wave. Here, this means that once wave (5) ends, BRK.B stock should plunge to the zone between $130 and $120 a share. What is left of wave (5) then?

berkshire elliott wave analysis monthly chart

The weekly chart above allows us to take a look at the wave structure of wave (5). As you can see, it too looks like a complete five-wave pattern. The sub-waves of wave 3 of (5) are also clearly visible. And, just like on the previous chart, the RSI indicator shows a bearish divergence between the last two high in wave 5 and 3 of (5).

Even the best of companies, one of which Berkshire Hathaway undoubtedly is, are not immuned to market declines, as the 2007-2009 period clearly demonstrated. Long-term shareholder should probably stay true to they philosophy and hold BRK.B no matter what, but for those, who are yet to join Mr. Buffett’s boat, $180 might turn out to be a very inappropriate level to buy in.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Foot Locker Resurrected by Elliott Wave

Less than two months ago, on April 1st, we published an article about Foot Locker. While the stock was hovering around $45.50, its hourly price chart revealed an Elliott Wave pattern, which encouraged us to believe the worst was over for this sporting goods retailer. Take a look at it below to refresh your memory.…

Read More »

American Express Stock in Reversal Territory

American Express stock fell to as low as $50.27 in February 2016 after the company’s net income fell by 12% in 2015. But as it usually happens with great companies, AXP was quick to rebound and less than two and a half years later the stock is trading near all-time highs above $100 per share.…

Read More »

BAC Stock Headed to $40 a Share

After two consecutive years of spectacular gains, which nearly tripled Bank of America’s market cap, the too-big-to-fail financial institution is having a slower, but still strong start of 2018. BAC stock is up 5.22% year to date, easily outperforming the S&P 500. Besides, analysts’ estimates for the company’s future earnings are constantly improving. As of…

Read More »

Buckle Stock Gains 40% in Two Months

Two months ago, on March 15th, we published an Elliott Wave analysis of The Buckle stock (NYSE:BKE), saying that “the stage is set for a surge.” At the time of writing, the stock was barely holding above the $18 mark after a decline of nearly 30%. But instead of joining the bears, we thought that…

Read More »

Alibaba Stock Attacks $220 but Runs on Fumes

Jack Ma’s Alibaba Group made its NYSE debut at $92.70 a share in September 2014. The initial bullish enthusiasm lifted Alibaba stock rice to $120 two months later, but once it settled down BABA entered a bear market, which erased over 50% of the company’s market value by September 2015. On January 31st 2018, Alibaba…

Read More »

Expedia Stock Investors Cannot Feel Safe Yet

Expedia stock reached its all-time high of $161 in late-July 2017, but has been a big disappointment ever since. The stock fell to as low as $98.52 in February 2018, and after a recovery to $118 so far, it is still down by 29.5% from its record high. Now, Expedia Group Inc. is a profitable,…

Read More »

Yum Brands Stock Looking at a 20% Correction

In just over two years, Yum! Brands stock (NYSE:YUM) nearly doubled from as low as $46.44 in February 2016 to $87.45 earlier this month, bringing the total market capitalization of the fast-food restaurant chain to over $29 billion. Does this mean now is the time to jump on the bandwagon in anticipation of even better…

Read More »

More analyses