In the beginning of April 2015, Pfizer was surging towards the $35 mark, after an exceptionally strong six-year uptrend. However, one of the most important things in trading and investing is to remember that no trend lasts forever. That is why one needs a forecasting method, in order to be able to predict when the trend might reverse. The method we have chosen is called the Elliott Wave Principle. Six months ago, on April 2nd, it warned us about Pfizer Inc. stock. In an article, called “Should Investors Trust Pfizer?”, we shared our bearish views by saying that “we should expect a significant decline, once wave V is over.” The chart below shows how the stock looked like back then.
The theory states that trends develop in repetitive patterns. A five-wave impulsive pattern, like the one Pfizer drew between March 2009 and July 2015, should be followed by a three-wave correction in the opposite direction. That was the only reason why instead of becoming more and more bullish as Pfizer rallied, we decided to take a step back and prepare for a significant decline once wave V was finally over. The next chart shows how the situation developed.
As visible, the stock continued a little higher and reached $36.43. Nevertheless, the bulls were still in trouble, but had no idea about it. Our fears became a reality on August 24th, the “Black Monday”, when Pfizer Inc. stock fell as low as $28.47. And, in or opinion, this is just the start, since this sell-off does not seem to be large enough to be the whole correction we are expecting. It is likely to be only the first part of it – wave A. If this assumption is correct, Pfizer still has a lot of falling to do, before the stock is worth investing in again.
