In February 2007 Lowe’s Companies stock was trading at almost 36 dollars a share. Two years later, in March 2009, it was down to 13.00. The Great Recession caused Lowe’s to lose 23 dollars a share, or roughly 60% of its value. However, despite the hard hit it took, the stock managed to recover and has been on a joyful ride ever since. In July 2016, it climbed to nearly 84.00 and is currently trading in the vicinity of 82.00. Does this mean now is the right time to join the bull market and invest in Lowe’s Companies Inc. stock? Let’s see what the Elliott Wave Principle has to show us on the chart below.
“Hold you horses” says the chart. The Wave principle states that trends move in repetitive patterns, called “waves”. The direction of the trend is indicated by a five-wave sequences, known as impulses or impulsive waves, but every impulse is followed by a three-wave correction in the opposite direction, before the trend resumes. As the chart shows, Lowe’s five-wave pattern is not over yet. It appears to be approaching the end of it third wave, labeled with (III). In this respect, the crash of 2007-2009 is supposed to be wave (II). So, wave (IV) down should be expected from now on. There are three guidelines we could use to determine the depth of wave (IV). First, fourth waves usually retrace back to the area between the 23.6% and the 38.2% Fibonacci levels to the third wave. Second, fourth waves, often slightly breach the lower line of the trend channel, drawn through the tops of waves one and three of the impulse. And third, fourth waves typically retrace back to the termination area of previous fourth waves. With all that being said, we could expect Lowe’s wave (IV) to fall to the zone between 65 and 57 dollars a share. In other words, the stock might lose between 19 and 27 dollars per share from its recent top at 83.65. That is quite similar to the amount it lost between 2007 and 2009. So the question investors have to ask themselves is whether they wish to have bought Lowe’s stock in February 2007? “No” seems to be the obvious answer in 2016, as well.
