Home Capital Group is up 17.4% in Toronto today following the company’s third quarter financial report. The mortgage lender beat analysts’ earnings expectations and delivered improvements in other areas, too. In total, HCG is up ~140% in 2019.
But things didn’t look so rosy at the beginning of the year. The stock was hovering in the mid-teens in January, still within the boundaries of a range it had been unable to leave for over 18 months. However, a quick Elliott Wave look at Home Capital’s 4-hour chart made us optimistic, so we shared it with our readers on January 9th. Let’s take another look below.
Home Capital was trading slightly below C$16 at the time. The 4-hour chart revealed that the price action from C$5.06 had formed a sequence of first and second waves, labeled 1-2-(i)-(ii). Wave 2 was a textbook A-B-C simple zigzag with a triangle in the position of wave B.
Home Capital Stock Doubles in Less than a Year
This meant that if we were right, Home Capital stock should soon head north in wave 3. Third waves are what every Elliottician dreams of, because they usually take the price much higher than the first wave. This made us conclude that “Home Capital seems to be in a position to reward investors in 2019 and beyond.” We don’t know about the “beyond” part yet, but…
…2019 has really been a wonder to behold. The bulls took the wheel almost right away and are still in the driving seat as of this writing. HCG exceeded the C$34 mark today, making the company’s near-collapse in 2017 feel like a bad dream.
And that is the problem. When people leave caution at the door, it is usually time to start worrying. From an Elliott Wave perspective, the stock is close to the 161.8% Fibonacci multiple of wave 1. This barrier is often a tough nut to crack for third waves. In our opinion, investors should proceed with caution as the price approaches C$40. If this count is correct, wave 4 down might be just around the corner.
Besides, from a fundamental point of view, it is not a secret that Canada’s housing market shows some bubble-like characteristics. Companies like Home Capital may face some difficulties if house prices start tumbling across the board.
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!