A little less than a year ago, Illumina Inc. was one of the wonder stocks in the market. Starting from below $28 in October 2011, it managed to rise to the 200-dollar mark by March 2015. But instead of allowing the majority’s optimism to guide us, we decided to take a look at Illumina stock through the perspective of the Elliott Wave Principle. On March 4th, 2015, we published “Illumina Not As Healthy As It Seems” to tell investors about the warning signs, visible on the weekly chart of the stock. See it below.
As you can see, the whole uptrend since October 2011 looked like a clear five-wave impulse with an ending diagonal in wave 5. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. In addition, the RSI indicator was showing a strong bearish divergence. So, in our opinion, the best decision was to avoid Illumina stock like the plague, regardless of what the company’s fundamentals were saying. Now, in February 2016, we know we made the right choice.
Truth is, Illumina continued to the north for a while, only to make the following crash much more painful. The stock climbed to $242 in July 2015. However, the new top only made the ending diagonal in wave 5 look bigger and pose a greater threat. The count remained the same in and so did the anticipated outcome.
Two days ago, on February 8th, Illumina fell as low as 130.31, which means the stock lost nearly $112 of value per share since in July, 2015. The Wave principle, once again, fulfilled its purpose to prevent us from making the wrong decision in the worst possible moment. In this case, it would have been a very costly mistake.
What to expect from now? The theory postulates that after every 5-3 wave cycle, the larger trend resumes in the direction of the impulsive sequence. Having that in mind, we would expect a recovery, once wave C eventually ends. The upcoming rally should be powerful enough to exceed the top at $242.
