Gap Inc. went a long way since its IPO back in 1976. In split-adjusted prices, during the next 24 years, the stock surged from as low as 11 cents to as high as 53.75 dollars a share by February, 2000. It was a really spectacular uptrend, but as we have always said, no trend lasts forever and Gap Inc. is just another example of that fact.
For the past 16 years growth has been hard to find. By September 2002, shares plunged to $8.35. Then the bulls decided they have had enough and undertook a major recovery to 46.85 in 2014, but still failed to achieve a new all-time high. Instead, Gap stock fell again to the $17 mark as of May, 2016.
To sum things up, the last 16 years have been a dead end for Gap Inc. investors. Trouble is, that judging from the weekly log chart below, the next couple of years might cause even more damage.
According to the Elliott Wave Principle, the direction of the trend is indicated by a five-wave pattern, called an impulse. As the chart shows, the strong sell-off between 53.75 and 8.35 seems to be just that. Another rule states that every impulse is followed by a three-wave correction in the opposite direction. In Gap’s case, we have a (w)-(x)-(y) double zig-zag in the position of wave B up to 46.85 in 2014. And the third and most important postulate of the Wave Principle says that once the correction is over, the larger trend resumes in the direction of the five-wave impulse.
So there is no surprise that Gap shares are currently trading around $25 – wave C has been in progress since the top of wave B. And if you think this year’s low of $17 is bad, keep in mind that wave C is supposed to decline below the bottom of wave A. If this is the correct count, the situation is about t get even worse for Gap investors, because chances are the stock is going to lose another 60-65% from now on.
It is true that Gap Inc. is a great company. However, there is a big difference between a great company and a great stock and the difference is in the price. Gap would make an excellent BUY near 8$ a share, but until then we would not want to be in this boat. And, in our opinion, neither should you.