MasterCard Inc. stock just climbed to a new all-time high of 108.93 dollars a share this week. It has been steadily rising from as low as 11.31 in November, 2008, so needless to say, MasterCard has been a great investment during the last 8 years. But investing would be too easy if we could only buy what is rising. Unfortunately, trends do not last forever and you do not want to be on the bears’ way when they return. The Elliott Wave Principle is famous for its ability to help analysts anticipate market reversals. Let’s apply it to MasterCard’s weekly chart and see what happens.
The weekly chart above shows the stock’s entire uptrend since its IPO in May, 2006. As visible, it could easily be seen as a five-wave impulse. According to the theory, every impulse is followed by a three-wave correction of similar degree in the opposite direction. In addition, wave (4) is a triangle, preceding the last wave of the sequence – wave (5). If this is the correct count, we should get ready for a major decline in MasterCard’s market capitalization, since the bears’ first stop is likely to be around the mid-70s support. Also pay attention to the relative strength index. It shows a classic bearish divergence between waves (3) and (5), which is another reason to get rid of MasterCard stock. Why owning something, which would lose over 30% of its value?
