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Leggett & Platt Not Done Falling

A clear technical pattern suggests Leggett & Platt might have a very disappointing 2017

Like many other stocks, Leggett & Platt bottomed out in March, 2009, and has been in a strong rally since. The engineered components and products producer has climbed from as low as $10.03 to as high as $54.63 a share between the end of the stock crash and the middle of 2016. Unfortunately, the second half of 2016 was not as good. The stock fell to $44 in the end of October, erasing most of the gains for the year. Right now, it is approaching the $50 mark again. Is this a good time to join the bulls’ army or is Leggett & Platt going to provide an even better opportunity at a lower price, if only we wait for it? Our Elliott Wave interpretation of the chart below suggests the latter.
leggett & platt weekly chart
Leggett & Platt’s weekly chart visualizes the stock’s entire uptrend since the March 2009 low. It also allows us to see that the price has drawn a textbook example of a five-wave impulse to the north. While this is a sign that the company’s stock is still in a long-term uptrend, it also indicates that $44 is probably not the final bottom. According to the theory, impulses are followed by a three-wave correction in the other direction. As the chart shows, Leggett & Platt’s weakness only consists of two, marked as (a) and (b). In other words, LEG is still vulnerable, because wave (c) is supposed to drag the prices below $44 a share. Typically, the support near the termination area of the fourth wave within the impulse is where the bears would be aiming at. In terms of price, this means Leggett & Platt could be expected to decline to roughly $36 a share, before the uptrend could resume. Hence, we think investors would be better off without this stock in their portfolio for now. In our opinion, unless you want to experience a 30% decline, you might want to stay aside, as well.

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