It’s been eight months since we last wrote about Humana. The stock was hovering around $260 in May 2019, following a plunge from as high as $356. And while there were plenty of things to worry about, a combination of Elliott Wave and Fibonacci analysis made us optimistic about Humana’s prospects.
Instead of joining the chorus of negative opinions at the time, we thought “Humana stock bulls haven’t lost the battle yet“. According to the chart below, targets near $400 were still plausible, giving the stock more than 50% upside potential.
The chart revealed that Humana’s entire uptrend since the bottom at $4.75 in June 2000. It looks like a five-wave impulse, whose fifth wave is still missing. Wave IV had already touched the 38.2% Fibonacci level where fourth waves often terminate.
Fifth waves are never a safe bet, but given the company’s high quality the stock was worth the risk near $260. Eight months later now, things are very different and the risk/reward ratio is no longer so favorable. Take a look.
Humana stock closed slightly below $357 a share on Friday, down from $376.40 and up 37.3% since our May 2019 article. The problem is that stocks get more risky as they rise, not less. HUM is simply not as attractive near $360 as it was at $260.
Humana Is Not as Good a Buy in 2020 as It Was in 2000
In fact, the five-wave impulse pattern, which has been developing for the past 20 years makes Humana rather dangerous. A three-wave correction in the other direction follows every impulse. With an almost complete I-II-III-IV-V on the stock’s weekly chart, it is time for Humana investors to get defensive.
$400 is still there for the taking in the short-term in wave (5) of V, but overall the stock is in bearish reversal area. The anticipated retracement can drag Humana down to the support of wave IV near $200 for a 50% decline. It is the same pattern that preceded the recent 32% drop in Boeing and the 43% crash in ServiceMaster. Humana bulls should keep that in mind if complacency starts to settle in.
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!