Moncler is a luxury fashion house headquartered in Milan, Italy. The company was founded in 1952, but only listed shares in a public offering in 2013 on the Milan Stock Exchange. Sales crossed the €2B mark for the first time in 2021, leading to a net income of almost €400 million and over €700 million in free cash flow. With a lot more cash than debt on its balance sheet, it’s safe to say that Moncler is in a very good business shape.
Unfortunately, strong fundamentals don’t always immediately translate into shareholder returns. Moncler stock climbed to an all-time high of €70.20 in November, 2021. By mid-June, 2022, it was down to €35, a drop of 50% in just seven months. Currently approaching €44, many might see this recent drop as a buying opportunity. A quick look at the weekly Elliott Wave chart below, however, reveals that such optimism is likely premature.
It shows that Moncler ‘s seven-year uptrend from €10.01 in October, 2014, to €70.20 in November, 2021 took the shape of an impulse. The pattern consists of five waves, labeled (1)-(2)-(3)-(4)-(5). The impulsive structure of wave (3) and (5) is also visible. The market also took the guideline of alternation into account. Wave (2) was a sharp drop, while wave (4) developed as a sideways-moving flat correction.
Moncler Setting Up a Bull Trap in Corrective Recovery to Mid-€50s
It follows the recent plunge to €35 must be part of the three-wave correction which occurs after every impulse. “Three-wave” is the key word here. The recent selloff looks more like a single wave, marked (a). If this count is correct, we can expect a short-lived recovery in wave (b), before the bears return in wave (c) towards the support near €26. Now, let’s take a closer look at wave (a) on the daily chart below.
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The daily chart of Moncler stock reveals that the plunge from €70.20 to €35 is also a five-wave impulse. It is labeled 1-though-5, where the five sub-waves of 3 and 5 can be seen, as well. This pattern confirms both the short-term positive and the big picture negative outlooks. It appears the bulls can make it to the mid-€50s in wave (b) before running out of momentum. As long as the stock trades below $70.20, however, another notable decline in wave (c) should be expected.
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