NetEnt AB, based in Stockholm, Sweden, is a leading global provider of digital distributed games and gaming systems to online casino operators. It is also a good example of a company, whose shareholders became a victim of the market’s vicissitudes.
NetEnt stock reached an all-time high of SEK 88.53 on June 1st, 2016. Less than three years later, it is barely holding above SEK 30. One might think this 65% crash was caused by a sharp deterioration in the company’s fundamentals – a giant pile of debt or mounting losses, for example.
Imagine our surprise when we found out NetEnt’s profits haven’t stopped growing and that it is actually debt-free. So, if we cannot rely on the fundamental picture to tell us where the stock is headed next, let’s use an alternative method of analysis instead.
The daily chart of NetEnt stock allows us to put the stock crash into an Elliott Wave perspective. As can be seen, the market has drawn a textbook five-wave impulse, labeled (1)-(2)-(3)-(4)-(5). Wave (1) is an expanding leading diagonal and the sub-waves of wave (3) are clearly visible, as well.
In addition, the market apparently took the guideline of alternation into account. Wave (2) is a simple a-b-c zigzag, while wave (4) is a triangle correction. If this count is correct, NetEnt stock is now in the last phase – wave (5) – of this impulsive decline.
NetEnt Setting the Stage for a Rally
According to the Elliott Wave theory, a three-wave retracement in the opposite direction follows every impulse. This means that once wave (5) is over, a bullish reversal can be expected. The MACD indicator supports the positive outlook with a strong bullish divergence between waves (3) and (5).
The anticipated recovery has the potential to lift NetEnt stock to the resistance area of wave (4) near SEK 60. In other words, a 100% rally seems to be around the corner.
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