With a market cap of roughly CHF 2B, Swiss aerospace components manufacturer Montana Aerospace often flies under investors’ radar. The company has recently been streamlining its operations, which the bulls say paves the way for attractive shareholder returns. And indeed, the stock has more than tripled from its late-2023 low to just under CHF 32 per share as of this writing.
On the other hand, the aerospace industry is notoriously cyclical and at 25 times forward earnings Montana is far from cheap anyway. Besides, the Elliott Wave chart below implies that the bull case might be too optimistic, at least in the short-term.
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It reveals that the recovery from under CHF 10 can already be seen as a complete five-wave impulse. We’ve marked it (1)-(2)-(3)-(4)-(5), where wave (1) is a leading diagonal. Wave (2) is a simple a-b-c zigzag, while wave (4), minding the guideline of alternation, took the shape of an expanding flat correction. If this count is correct, wave 5 of (5) is the last missing piece of this impulsive puzzle.
Even though a new swing high in the mid-30s makes sense, we don’t think chasing it is worth the risk. According to the theory, a three-wave correction follows every impulse, usually erasing most of its fifth wave. That’s why a drop to the low-20s per share makes a lot more Elliott Wave sense than simply extrapolating the recent strength into the future.
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