The coronavirus selloff hit the restaurant industry hard. With stores closing to prevent the virus from spreading, the stocks of McDonald’s, Starbucks, Dunkin and the like all came crashing down. Yum! Brands wasn’t spared either.
YUM stock has been losing ground since the summer of 2019, but it was the COVID-19 crisis that really scared investors. Between late-July 2019 and March 2020, Yum! fell from $120 to $55, losing 54% in less than a year.
However, as it often happens in the markets, the stock started recovering even before there was a solution to the crisis. Yesterday, Yum! closed at $91 a share, up 65% from the March low. What interests us is the Elliott Wave structure of this recovery. Let’s take a look at it below.
Yum!’s 4-hour chart reveals that the rally from $55 to $98 is a clear five-wave impulse pattern. It is labeled 1-2-3-4-5 and means that once the current correction is over, more strength can be expected. The question is what is left of it then?
Yum! Bears Have Job to Do, before the Bulls Take Over
Corrections usually consist of three waves. The most common shape they take is the simple A-B-C zigzag. That is what we believe is now unfolding in Yum! stock. The decline to $84 in June must be wave A, followed by a recovery to $95.44 in wave B last month.
If this count is correct, wave C needs to complete the whole 5-3 wave cycle before the uptrend resumes. In most cases, C-waves breach the end of the corresponding A-wave. In addition, the support area of wave 4 is a natural target for the bears from here. This means a decline to $80-$75 is likely to occur before the bulls return. Once they do, targets above $100 a share would make sense.
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!