It was a nice run, but Humana’s upside potential is limited from now on
The last eight years must have been great for Humana Inc. investors. From its March 2009 bottom at $18.57, the stock has gained over $200 a share or roughly 1077%. That is 36.2% compounded annually, which is a great return in anybody’s book. Humana closed slightly below its all-time high yesterday, which is a strong indication that investors are felling as if the uptrend is going to last forever. But is it? Of course not and our job is to try to determine what is left of it by applying the Elliott Wave Principle to Humana’s weekly price chart given below.
The chart above shows the stock’s entire rally since 2009. According to the theory, a five-wave impulse is what every trend is made of. Humana seems to be confirming that by drawing a clear impulsive pattern, whose wave V is still developing. Unfortunately, every five-wave sequence is followed by a three-wave correction of similar magnitude in the opposite direction. This means that once wave V exceeds the top of wave III, a major bearish reversal would be likely. In our opinion, investors should not get too carried away by Humana’s impressive performance in the last eight years. The support of wave IV near $150 a share is a reasonable target of the anticipated decline. It looks like the bull party is approaching to its end and in the stock market, latecomers always suffer the most.
