close icon

Honeywell Stock is a Temptation to Resist

Honeywell is a multinational conglomerate specializing in industrial software in the aerospace, home and building, performance materials, safety and productivity solutions technologies segments. The company has been around for over a century. It is a component of the S&P 500 index and just rejoined the DJIA earlier this year.

HON has a market cap of almost $150 billion, over half of which it has gained in the nine months since March. The recovery from the coronavirus crash saw the stock price rise from $101 to nearly $214 a share. Honeywell is now hovering at new all-time highs, which surely tempts many to join the uptrend now. The chart below explains why we think this would be a bad idea.

Honeywell can lose half its value in Elliott Wave correction

The chart above allows us to put Honeywell ‘s entire progress since October 2002 in Elliott Wave context. The impressive uptrend which took the stock price from below $18 to over $213 in eighteen years looks like a textbook impulse pattern. Its five waves are labeled (1)-(2)-(3)-(4)-(5).

Honeywell Is a Great Business, but a Bad Investment at This Price

Wave (2) unfolded during the Financial crisis of 2007-2009, while wave (4) corresponds to the COVID-19 crash. Between these two is wave (3), whose impulsive structure is marked 1-2-3-4-5. The sub-waves of wave 3 of (3) is also visible.

If this count is correct, the sharp surge Honeywell investors have been enjoying over the past nine months must be wave (5). According to the theory, a three-wave correction follows every impulse. This means that once wave (5) ends, we can expect a major retracement to occur.

The negative phase of the wave cycle usually erases the entire fifth wave. In Honeywell’s case, this translates into a decline back to roughly $120-$100 a share. The RSI indicator supports this pessimistic outlook with a bearish divergence between waves (3) and (5). Besides, HON can hardly be expected to grow at a 30% clip to justify its 2020 P/E of 30. In out opinion, there are plenty of technical and fundamental reasons to avoid this otherwise great business.

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!



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Visa ‘s Diagonal Pattern Can Mean a Top is Forming

Visa has been a wonder to behold almost since it went public at $17.25 in March 2008. True, the following twelve months surely must have scared many shareholders, but the ones who stayed have been generously rewarded. Since the bottom in 2009, Visa stock is up over 2000% and that is without counting the dividends.…

Read More »

NYSE Operator Can Fall 50% as Correction Begins

Exchanges don’t exist in a vacuum. There are companies whose entire operation is dedicated to running them. We recently wrote about CBOE Global Markets – the company operating, among others, the Chicago options exchange. Today, we would like to examine another major company in the field – Intercontinental Exchange Inc. – the company owning the…

Read More »

Lululemon Stock Can Add ~30%. Then It Can Halve

Lululemon has gone a long way since its July 2007 IPO. Investors brave or lucky enough to have bought after its 93% collapse during the 2008-2009 Financial crisis and stayed the course have made a real fortune. in September 2020, LULU stock was just pennies away from the $400 mark. Although it dropped by a…

Read More »

Disney Stock Bulls Play With Fire Above $200 a Share

2020 was shaping up to be a disaster for Disney shareholders. Not only did the COVID-19 selloff cause a 48% plunge in the stock price, but the indefinite closing of cinemas worldwide crippled Mickey Mouse’s business operations. The company’s Disney+ streaming offering came to the rescue, but still could not prevent the company from posting…

Read More »

Snap Stock Bouncing Off Fibonacci Support

It took over three years for Snap Inc., the company behind the popular app Snapchat, to reach its IPO valuation. After reaching almost $29.44 on its second day of trading in March, 2017, SNAP stock fell as low as $4.82 in December 2018. On the other hand, investors bold enough to buy near those lows…

Read More »

Rapid7 Doubles As Elliott Wave Setup Bears Fruit

We first wrote about Rapid7 in late-August 2019. The stock was hovering above $55.50, but the structure of the post-2016 uptrend suggested a notable decline was in progress. In March 2020, it fell to $31.34, down 52.5% from its all-time high. A month later, with RPD still below $47, we shared our bullish stance on…

Read More »

PNC Financial – Elliott Wave Analysis Works Yet Again

Earnings at PNC Financial suffered last year along with the entire financial sector. Net income before extraordinary items came in at $2.95B in 2020, down from $5.35 in 2019 for a 45% reduction. In our opinion, amid the biggest crisis since the Great Depression, the fact that PNC and its peers even managed to stay…

Read More »

More analyses