Verizon Communications Inc (NYSE:VZ) has been on a shopping spree. It was recently announced the company is going to acquire Yahoo!’s core assets for $4.8 billion.
The telecom giant also spent $2.4 billion on Fleetmatics Grup (NYSE:FLTX) this months, and $1.8 billion more on XO Communications in February this year.
Judging from the pace with which Verizon is expanding its empire, one might think the company has a bright future ahead. This is probably true, but does it mean now is the right time to buy Verizon stock? “Wait a while” says the Elliott Wave Principle.
According to the theory, the direction of the trend could be identified by recognizing a five-wave impulse. As Verizon’s weekly price chart shows, there is a clear impulsive rally from 21.56 in October 2008 to 56.95 in July 2016.
This means the trend is pointing up and Verizon’s future could turn out to be very bright, indeed. However, this is not the time to buy the stock, because the Wave principle also postulates that every impulse is followed by a three-wave correction in the opposite direction.
In Verizon’s case, the above-shown I-II-III-IV-V sequence is likely to give way to a significant A-B-C decline.
Prices could be expected to decline to the termination area of wave IV, which means a pullback to around 40.00 could be in the cards. In addition, the RSI indicator is showing the typical bearish divergence between waves III and V, which also suggests the bulls are exhausted.
In our opinion, Verizon stock is going to deserve a place in investors’ portfolios, but not yet. At least a couple of years might have to pass, before it is worth buying again. There is a difference between a good company and a good stock. It is not always the same thing.