In 2020, Ingersoll Rand spun off its industrial tools business and renamed itself Trane Technologies, a leading HVAC and refrigeration solutions manufacturer. Investors in both companies have enjoyed great returns since, but we’re going to focus solely on Trane today. The stock is up six-fold over the past five years, climbing from a pandemic low of $70 to over $420 a share now.
One problem the bulls are now facing is that Trane Tech trades at a forward P/E ratio of 33, which is far from cheap. Overvalued stocks can remain so for a long time, however. So the second, and bigger problem for Trane investors, is the Elliott Wave pattern on the weekly chart below.
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A complete five-wave impulse to the upside from the bottom in 2009 strongly suggests that Trane Tech’s uptrend is approaching its limits. We’ve marked the pattern (1)-(2)-(3)-(4)-(5), where two lower degrees of the trend are visible within wave (1). The 2020 Covid-19 crash fits in the position of wave 4 of (1).
Wave (2) took place during the 2022 bear market, while wave (3) was a wonder to behold. Wave (4) ended shortly after touching the 38.2% Fibonacci support level last month. If this count is correct, the current surge to a new record must be the fifth and final wave. According to the theory, a three-wave correction follows every impulse.
Wave (5) could exceed $450 and even go for $500 in the short term, but instead of joining the bulls now, we think that investors should use to opportunity to take some profits. The anticipated retracement could drag Trane Tech stock down to $250 or lower. A 40% to 50% reduction in the company’s valuation would actually make a lot of sense, not only Elliott Wave-wise.
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