Oil States Stock: A Textbook Elliott Wave Setup

Oil States International Inc., founded in 1937, provides services to oil and gas companies. With a market cap barely exceeding $2 billion, you might ask what is so interesting about this stock. The answer – its charts, of course. The size of the enterprise should not matter, because the stock prices of both large and small companies follow the same Elliott Wave rules. And right now, Oil States stock is very interesting and perhaps… dangerous. The daily chart below explains why.
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What we have here is a textbook example of a 5-3 wave cycle pointing to the south. Between June 2014 and February 2016, Oil States fell from $65.77 to as low as $21.44, losing over two-thirds of its market value. Two weeks ago, the stock managed to recover to $41.75, which probably makes investors believe the worst is already behind them and now is the time to jump on board again. Unfortunately, this does not seem to be the case, because if we take a look at the chart above, we will see that the crash to $21.44 takes the shape of a perfect five-wave impulse. The sub-waves of waves (1) and (3) are also clearly visible, while wave (5) is an ending diagonal. According to the Elliott Wave Principle, every impulse is followed by a three-wave correction in the opposite direction. That is what we think has been in progress since February. If we label the impulsive weakness as wave A, the corrective recovery in wave B appears to be a (w)-(x)-(y) double zig-zag. B-waves could be very dangerous, because all they do is give false hopes. In this case, Oil States stock has nearly doubled from its February lows. Unfortunately, if this is the correct count, the worst is yet to come, because once wave B is over, the bears are supposed to take the wheel again. Furthermore, their next stop lies somewhere below the bottom of wave A. In other words, Oil States stock might lose all of this year’s gains plus more. We would not be surprised to see the $20 mark taken out by the bears. That is why now is not the time to join the bulls. Their reign is almost over.

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