You don’t have to dig too deep to see that Victrex and Caterpillar don’t have much in common, but please bear with us.
When we wrote about Caterpillar stock in July, 2022, the company had just lost a third of its market value. The stock had fallen from an all-time high of $247 to about $167 a share in just over a year. Just like now, laymen and experts alike expected a recession to hit the global economy at any minute and drag stock prices even lower. But a quick Elliott Wave look at Caterpillar’s 4-hour chart suggested a major recovery was likely to occur instead. Less than six months later now, CAT is up 33% and hovering above $240 again.
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Caterpillar’s decline was clearly corrective. We thought it was a W-X-Y double zigzag correction, whose wave X was an expanding triangle. Just like the more common contracting variety, expanding triangles precede the final wave of the larger sequence. Hence, we concluded that “it makes sense to expect more upside going forward.”
True, wave Y evolved into a bigger w-x-y retracement. Once a correction is over, however, the preceding trend resumes. Here, the trend prior to the 2021 top was clearly bullish, so that additional dip in wave ‘y’ of Y didn’t invalidate the positive outlook. Before the year 2022 was over, Caterpillar was already on the verge of a new record.
Victrex Stock Looks Like a Long-Term Double
Victrex is a relatively small UK-based polymers manufacturer, which operates in two segments: industrial and medical. The company’s sales, just like Caterpillar’s, have been more or less stagnant for years. The thing is that almost the same Elliott Wave sequence is visible on its daily chart.
The stock reached its all-time record of 3438 pence a share in September, 2018. Today, it sits more than 50% lower at less than 1700. The good news is that its decline has taken the shape of a simple A-B-C zigzag correction, whose wave B is again an expanding triangle. The only difference is that instead of three-wave structures in Caterpillar’s waves W and Y, we have motive structures in waves A and C.
Wave A is an expanding leading diagonal, while wave C is a textbook five-wave impulse. Both are labeled 1-2-3-4-5 and the five sub-waves of wave 3 of C are also visible. If this count is correct, the post-2018 bear market in Victrex stock must be over. Higher levels and eventually a new record can be expected in the long term.
Because of the company’s unsatisfying fundamentals, however, we have no plans to add it to The EWM Interactive Stock Portfolio. In our opinion, the 18 positions currently in it offer a much better long-term risk/reward ratio.
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