When we wrote our previous article on Danish jewelry maker Pandora in December, 2020, the stock was up over three-fold since March. That recovery from DKK 180 to DKK 651 didn’t not come out of the blue, though. It was the result of a bullish setup we managed to identify as early as July 2019.
So, the straight-line recovery from the depths of the coronavirus panic made sense. Besides, we thought management was doing the right things, business-wise. In addition, despite the surge, the stock was still far below its 2016 all-time high. We concluded that Pandora was shining bright despite the pandemic and there was no reason to abandon the stock.
Less than a year later now, Pandora is hovering around DKK 840, up 29% since we last wrote about it. The company is holding its Capital Markets Day today with more good stuff in its pipeline. Management is targeting 6% to 8% sales growth through 2023 and will repurchase an additional DKK 3 billion worth of shares by February 4th, 2022.
Pandora Poised for a Short-Term Drop Even As Fundamentals Improve
In short, Pandora ‘s long-term fundamental picture keeps improving. Short-term corrections are always a possibility, though. Should investors expect one soon? To answer that question, let’s take a look at the situation from an Elliott Wave standpoint.
The daily chart above visualizes Pandora ‘s uptrend from the March 2020 bottom at DKK 180. It can easily be seen as an almost complete five-wave impulse. The pattern is labeled 1-2-3-4-5 and has been developing between the parallel lines of a trend channel. The support cluster formed by the 38.2% Fibonacci level and the lower line of the channel put the brakes on wave 4 at DKK 754.
If this count is correct, the current rally must be part of the fifth and final wave of the pattern. Wave 5 is supposed to exceed the top of wave 3, so targets above DKK 900 seem reasonable. Once the price gets there, however, the impulsive sequence would be complete. According to the theory, a three-wave correction should follow.
How deep can wave (2) go is impossible to predict, but it makes sense to expect a pullback to roughly DKK 700. Given the company’s high quality and good prospects, we will view this dip as another buying opportunity. Wave (3) can lift Pandora significantly higher as the business keeps growing in the long run.
Disclosure: The author holds a long position in Pandora A/S stock.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!