The stock market at large is crashing and even stocks owned by superinvestors like Warren Buffett are not immune to sharp selloffs. One such stock is Moody’s. As of September 30th, Berkshire Hathaway owns approximately 24 670 000 Moody’s shares, making it the 8th largest position in the portfolio.
Moody’s reached an all-time high of $187.98 in July, but closed below $137 per share yesterday for a total loss of 27% in just five months. Experienced long-term investors usually take advantage of such notable pullbacks to add to their positions in companies they like. Moody’s Corporation is certainly a great company, but is this decline a buying opportunity or the beginning of a larger selloff? Let’s hear what the Elliott Wave Principle can tell us.
The 4-hour chart of MCO stock reveals the structure of the decline from roughly $188 a share. As visible, it can be seen as a textbook five-wave impulse, labeled 1-2-3-4-5, which has been developing between the parallel lines of a trend channel. The 61.8% Fibonacci level discouraged the bulls in wave 2, while wave 4 slightly breached the 50% retracement level of wave 3.
According to the Wave theory, a three-wave correction in the other direction follows every impulse. We believe wave 5 is now in progress and it looks like the price is aiming at the support near $130. It is in that area where a bullish reversal for the start of wave B up can be expected. Another reason not to be overly bearish on Moody’s stock right now is the MACD indicator. It shows a strong bullish divergence between waves 3 and 5 of A.
So if this count is correct, we can prepare for a notable recovery in Moody’s stock. The resistance of wave 4 near $160 a share is a natural target for the bulls in wave B. Once there, however, the 5-3 wave cycle from the top at $188 would be complete and another selloff in wave C should be expected.
In conclusion, the bears seem to be losing momentum already. A short-term recovery to roughly $160 can soon begin, but before a real long-term investing opportunity occurs, wave C would need to drag the stock price below the bottom of wave A. Do not be surprised to see Moody’s stock falling to double digits in 2019.
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