Founded in 1920, SEGRO Plc is a REIT, which owns, manages, and develops modern warehouses and industrial properties in the UK and Europe. The company has a market cap of nearly £9B and is a constituent of the British benchmark FTSE 100 index. Between its 2009 bottom and early-January, 2022, the stock rose more than ten-fold, from under 150 to over 1500 pence a share.
This all sounds very respectable until you realize that half of those gains have been lost by now. The first nine months of 2022 saw SEGRO ‘s share price crater from 1508 to 669 pence. The stock currently trades in the 730s, but is still down by over 50% from last year’s top. The biggest culprit for this crash was, of course, the sharp surge in interest rates, which weighted heavily on REITs’ indebted balance sheets and property valuations.
Now, economists believe that central banks on both sides of the Atlantic are approaching the end of their tightening campaigns. This bodes well for REITs in general, whose borrowing costs may finally stop rising. Alas, we think that any gains SEGRO stock in particular might enjoy are likely to be short-lived. The Elliott Wave chart below explains.
The daily chart above reveals that the decline from 1508 to 669 pence a share in 2022 is a five-wave impulse. The pattern is marked 1-2-3-4-5 in wave (a), where wave 1 is a leading diagonal and the five sub-waves of wave 3 are also visible. Naturally, a three-wave corrective recovery followed and lifted the stock to 920 GBp in January, 2023.
It looks like the bulls weren’t ready to give up then, though. Wave (b) seems to be still in progress as an A-B-C flat correction, whose wave B was another a-b-c zigzag down to 684 in July. If this count is correct, wave C may lift SEGRO to the resistance of wave 4 of (a) near 1000-1100 GBp. Joining the bulls in that area, however, would not be a good idea.
The bearish 5-3 wave cycle would be complete and the bears would be eager to return in wave (c). Downside targets near 600 GBp or lower would make sense. Such a development would also fit nicely into the bigger picture Elliott Wave count, which includes SEGRO ‘s post-2009 uptrend. Let’s take a look.
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It took Segro 12 years to recoup what it lost in just two between 2007 and 2009. The moral of the story is that having a long-term horizon doesn’t help if you happen to be invested in a bubble. You’re still going to lose your money, and your time. What interests us here, however, is the structure of that 2009-2022 recovery. It can easily be labeled (1)-(2)-(3)-(4)-(5), where the impulsive structures of both (3) and (5) are also visible.
This means that the 2022 collapse must be the fist part – wave (a) – of the three-wave correction, which follows every impulse. The rest of wave (b) up and then (c) down still need to develop before the cycle that began in 2009 can be complete. Investors must make sure not to confuse any wave (b) recovery with a new bull market.
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