Riding the Rollercoaster: A Swift Turnaround
In mid-October 2022, the future of Sherwin-Williams appeared bleak as the stock plummeted by 45%, causing distress among investors amidst looming recession fears. Strikingly, a meticulous examination of the downturn pattern hinted at a possible shift. The formation on the hourly chart, revealing an Elliott Wave sequence, hinted at a potential turnaround in the making.
The Sign of Hope: A Structural Analysis
Delving into the depths of the 4-hour chart uncovered a classic A-B-C zigzag correction from $354 to $195, with wave B even taking the form of a triangle. The clear presence of five waves in both waves A and C of the impulse patterns provided further credence to the impending shift. As per Elliott Wave theory, the conclusion was clear – the end of a correction usually signals a return to the prior trend, and Sherwin-Williams’ upward trajectory before the downturn hinted at a probable resurgence.
Soaring to New Heights: Breaking Records
The data did not lie. Subsequent events saw the bulls charging back with fervor, propelling the stock to a fresh all-time high in the vicinity of $360 per share. However, amidst the celebratory cheers, a couple of red flags have emerged.
Cautious Optimism: Challenges and Troubles Ahead
First and foremost, the stock currently trades at a forward P/E ratio of 31, a valuation that appears lofty for a company with modest single-digit revenue growth even with its industry dominance. Secondly, the structure of the recovery from $195 raises concerns, resembling a W-X-Y double zigzag pattern with corrective characteristics.
As per this interpretation, a potential (A)-(B)-(C) expanding flat correction could be underway, with waves (A) and (B) already completed and wave (C) awaiting formation. Envisioned as a five-wave impulse articulated as I-II-III-IV-V, breaching the low point of wave (A) could open the doors for bears, targeting levels below $195. Therefore, prudence may dictate some investors consider booking profits rather than solely reveling in the recent stock performance.
