Campari is an Italian liquor and spirits maker with traditions dating back to 1860. The company’s stock price plunged sharply in March along with the markets in general and then recovered just as quickly to new records by year-end.
As shares hover near all-time highs, however, dark clouds appear to be gathering over the spirits industry once more. The U.S. is adding more varieties to its EU alcohol tariffs, hitting profits at Campari and its rivals by up to 6%. The truth, though, is that just by looking at the chart below, we would’ve been bearish even without the US-EU trade tensions.
Campari ‘s weekly chart shows its entire share price history since its 2001 public debut in Milan. The uptrend from €0.54 twenty years ago to €9.87 in November is shaped like a textbook five-wave impulse. The pattern is labeled (1)-(2)-(3)-(4)-(5), where three smaller-degree impulses are visible within wave (3).
Tariffs Can Trigger a 46% Selloff in Campari Stock
Waves (2) unfolded during the 2008 Financial crisis, while last year’s coronavirus selloff fits in the position of wave (4). If this count is correct, the post-March surge must be wave (5). According to the Elliott Wave principle, we can expect a three-wave correction to follow every impulse.
Fifth waves are usually fully retraced by the negative phase of the cycle. In Campari ‘s case, this means a drop to roughly €5 a share is likely going forward. From the current price of €9.34, this translates into a ~46% decline.
Supporting the negative Elliott Wave outlook is a strong bearish RSI divergence between waves (3) and (5). Not to mention the hefty 44 price-to-earnings ratio Campari currently trades at. In our opinion, there are better places to look for value across stock markets in Europe.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!