Nordstrom shareholders were enjoying a smooth ride so far in 2018. The stock was up by as much as 38.8% by the end of October, crushing the return of the S&P 500 by a large margin. November, on the other hand, is not that generous. JWN fell from $67.75 to less than $50 a share in the last two weeks, erasing most of the year-to-date gains.
According to Barron’s, the reason for the sudden collapse was the company’s latest quarterly report, which delivered an earnings miss and a weak revenue guidance for the full year. It all makes sense in hindsight, but one problem remains – investors cannot turn back time and protect their profits. Fortunately, Elliott Wave analysts do not have to worry about time travel.
The chart below, published in an article titled “Nordstrom’s Woes Not Over Yet“, shows JWN stock investors had plenty of time to take defensive measures.
On June 28th 2017, we shared our opinion that “the current rally could be expected to continue towards the area between $65 and $70 a share.” On the other hand, this chart also suggested that “the bulls should be careful approaching this zone, because once wave (B) ends, wave (C) to the south should begin.” Seventeen months later, here is an updated chart of Nordstrom stock.
JWN reversed to the downside shortly after entering the $65 – $70 area. As visible, by the time the Q3 earnings disappointment arrived, the bearish reversal was already in place. This means that anticipating major market moves is a lot more important than predicting an earnings miss or beat, mostly because the latter is impossible.
Nordstrom ‘s EPS Miss was just a Catalyst
Besides, we have seen stocks crashing after a positive EPS surprise and stocks rising following an EPS miss. In this respect, staying ahead of the news actually means anticipating other people’s reaction to it. And that is where the Elliott Wave Principle is most valuable.
In Nordstrom’s case, there was a five-wave impulse pattern from over $83 to $35 a share. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. Once this 5-3 wave cycle is over, the larger trend resumes in the direction of the impulsive sequence. Since wave C of (B) was still missing, it made sense to expect more strength towards $65 – $70, followed by more weakness in wave (C).
The good news is the same reasoning can be successfully applied to other trading instruments, as well. It wasn’t something uniquely related to Nordstrom and insider information was not part of the equation, either. It was just an Elliott Wave pattern on Nordstrom’s price chart.
With the bears already in charge, Nordstrom remains vulnerable going into 2019. Wave (C)’s initial targets lie below the bottom of wave (A) at $35. If this count is correct, JWN stock can lose another 30% from current levels. Perhaps even more…
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