Check Point Software Technologies is among the global leaders in the field of cyber security. The company was founded in 1993 and is headquartered in Tel Aviv, Israel, but CHKP stock trades on the NASDAQ since 1996.
CHKP went though the dot-com bubble and burst in 1999-2002. Its stock price didn’t fully recover from it before the year 2017. Last week, it closed at $113.32 a share, meaning buy-and hold investors from 20 year ago are still at the break even point. On the other hand, those who were buying the dips in CHKP stock since 2002 have been rewarded very generously.
As the chart above depicts, the buy-the-dip strategy led to profits every single time since 2002. Usually, when something so simple has been working so well for so long, investors start believing it will never stop working.
Unfortunately, no trend lasts forever and therefore no strategy works forever. Market conditions eventually change, bringing losses to the careless and unprepared. Check Point is a great company, but in our opinion the current pullback from $132.75 is a not a buying opportunity. At least not yet.
No More Easy Money to Make in CHKP Stock
The reason for our pessimism is not buried in the company’s fundamentals, but in the structure of the bull market since 2002. It can be seen as a textbook five-wave impulse, labeled (I)-(II)-(III)-(IV)-(V). The sub-waves of waves (III) and (V) are clearly visible, as well.
This pattern indicates CHKP stock is in a long-term uptrend. The problem, according to the Elliott Wave theory, is that a three-wave correction in the opposite direction should follow first.
The corrective phase of the cycle usually erases all of the fifth wave’s progress. For CHKP, this translates into a decline to the support area of wave (IV) near $65 – $70 a share. There is also a bearish RSI divergence between the last three highs, which reinforces the negative outlook.
If this analysis is correct, the current dip is going to be a lot bigger than the last several ones. A much better buying opportunity should occur once CHKP stock enters the support area near $70.
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