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Illumina Stock Outperforms, Walks on Thin Ice

There is no question that keeping all eggs in one basket is a risky strategy to rely on in the markets. However, if investors held nothing but Illumina stock for the last two years, they would have beaten the S&P 500 by a large margin. Shares in the biotechnology company have risen by over 76% since February, 2016, versus “only” 48.5% for the benchmark index.

But it was not at all clear that ILMN was poised for a rally back then. The stock had just crashed from an all-time high of $242 to as low as $130 in six months, following a five-wave impulse pattern we warned you about in “Illumina Not as Healthy as It Seems”, published in March, 2015. Almost a year later, in February 2016, with Illumina stock already down by 46%, the Elliott Wave Principle suggested it was time for the bulls to show up again.

illumina elliott wave analysis february 2016

The chart above, included in “Illumina Now and Then” on February 10th 2016, was everything an Elliott Wave analyst needed to form a bullish opinion on Illumina stock. It allowed us to recognize a complete 5-3 wave cycle, formed by a five-wave impulse with an ending diagonal in wave 5 and a simple A-B-C correction. According to the theory, once the negative phase of the cycle was over, the larger trend was supposed to resume in the direction of the impulsive sequence. So, while ILMN was searching for a support to bounce up from, we thought “the upcoming rally should be powerful enough to exceed the top at $242.” Nearly two years later, here is how the weekly price chart of Illumina stock looks like today.

illumina stock elliott wave analysis

Once again, patience was required as we could not pick the exact bottom. The stock remained indecisive until December 7th, 2016, when it finally found a bottom at $119.37. However, the count did not change much and all Illumina shareholders had to do was stay calm and wait. On January 9th, 2018, their patience was generously rewarded after the price exceeded the previous all-time high of $242 and climbed to $245.74 on the back of strong Q4 2017 sales expectations.

But instead of relying on the news, which is always very good at the top and very bad near the bottom, we would continue to look at the charts for guidance. In order to find out where does the recent strength fit into the bigger picture, we need to take a look at Illumina’s monthly logarithmic chart below.

illumina stock weekly elliott wave analysis

Logarithmic scale allows us to take a look at he wave structure of Illumina’s entire rally since March 2003, when its phenomenal advance began from $0.86 in split-adjusted prices. As visible, it appears to be an almost complete five-wave impulse. The A-B-C decline in 2016 is labeled as wave (4), which means the spectacular surge in 2017 should be wave (5). Illumina stock’s momentum is strong right now, so chances are good higher levels would be reached in the short-term. Even $300 a share cannot be ruled out at this point.

On the other hand, once wave (5) ends, a major three-wave retracement should follow. Just like a three-wave slump in wave (4) followed a five-wave rally in wave (3), a similar pullback seems to be around the corner for ILMN. Except bigger, because this time it would be retracing Illumina’s entire 15-year uptrend since 2003.



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