Energy equipment and services powerhouse GE Vernova published its Q2 financial results yesterday. Investors apparently didn’t like what they saw as the stock tumbled 8.7% to close the session at $985, down from $1196 earlier this month. This drop was attributed to the company’s EPS number missing Wall Street analysts’ estimates.
What many often forget, however, is that beating estimates is not a company’s purpose of existence. Businesses should not be punished for someone else’s failure to correctly predict their results. Companies are supposed to grow by serving more clients as best as they can, while rewarding their shareholders in the process. Judging by GE Vernova’s dominant market share, growing revenues, backlog, free cash flows, dividend and share repurchases, it is doing both quite well. Had the stock risen yesterday instead, these KPIs would have been used to justify the rally.
So instead of making up pseudo-logical explanations for why the stock fell, let’s put this drop in Elliott Wave context to get an idea of what to expect next.
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The daily chart above visualizes GE Vernova’s entire journey since it became an independent publicly-traded company in 2024. The stock began rising right away and has been a wonder to behold for more than two years now. From an Elliott Wave perspective, the path the share price took closely resembles a five-wave impulse pattern. We’ve labeled it I-II-III-IV-V, where the five sub-waves of wave III are also visible and two lower degrees of the trend can be traced within the structure of wave (3) of III.
If this count is correct, the current decline must be part of wave IV and the only missing piece of the puzzle is wave V. The support area of wave (4) of III should soon discourage the bears and make way for the bulls again in the final fifth wave. The stock is likely to exceed $1200 and go for $1300, before the pattern is complete.
Instead of seeing the new all-time high as confirmation of the uptrend, however, we think investors should use the occasion to take some profits off the table. According to the theory, a three-wave correction follows every impulse. Its healthy revenue growth rate may not be enough to save GE Vernova from its unhealthily high valuation. Once wave V is over, a significant drawdown is likely going to be needed before the larger uptrend can continue.
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