Legg Mason stock fell to $23.25 during the December 2018 rout, but managed to regain its footing as 2019 began. Two weeks ago, it touched $40.27 for a year-to-date gain of 73%, not counting the dividends.
But stocks don’t rise in a straight line. After a big surge in a short time it is usually wise to prepare for a correction and maybe take some profits off the table. Is that the case with Legg Mason stock? Let’s see.
The daily chart of LM stock reveals that the structure of the rally from $23.25 is impulsive. Impulses consist of five sub-waves and point in the direction of the larger trend. A five-wave impulse to the north means Legg Mason stock is in an uptrend.
On the other hand, the Elliott Wave theory states that a three-wave correction follows every impulse before the larger trend can resume. Legg Mason has already completed its five-wave pattern, labeled 1-2-3-4-5. This means a three-wave pullback is now due.
The MACD indicator supports the short-term negative outlook with a bearish divergence between waves 3 and 5. If this count is correct, the stock can lose 20-25% before its next bull run begins.
Did you like this analysis? 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!