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Buffett Darling BYD to Resume Uptrend Soon

Published 02/15/2024, 12:38 AM
Updated 07/09/2023, 06:31 AM

Despite its bright future, the electric vehicle market has been in the doldrums as of late, and not just Tesla (NASDAQ:TSLA). According to CompaniesMarketCap, EV manufacturer BYD Co. Ltd. is the 20th largest Chinese company with a market value of just over $70B. That’s down by nearly 50% from its mid-2022 all-time high. Having skyrocketing sales and Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) as an investor apparently still doesn’t provide immunity against stock price declines.

The good news is that if the underlying company is sound, such declines tend to be temporary. And BYD (SZ:002594) looks like a very sound one. Not only is it growing and profitable, but it also has a big net cash position on its balance sheet. So the only question is, what’s left of the stock’s bear market? The Elliott Wave chart below is giving us a hint already.BYD Stock-Weekly Chart

Between its 2008 bottom and 2022 peak, BYD drew a textbook five-wave impulse pattern. We’ve labeled it I-II-III-IV-V, where the five sub-waves of wave III are also visible. Wave 2 of III was an a-b-c running flat correction. One would be forgiven to have given up by 2020, since BYD wasn’t a great long-term investment during the first couple of decades of its existence.

Ironically, everything changed during the Covid-19 pandemic. China’s initial success at preventing the spread of the virus allowed the company to keep expanding into the growing EV market. The stock price surged in wave III, before entering a sequence of fourth and fifth waves. Wave V peaked at $43.61 on the OTC market on June 28th, 2022.

According to the theory, a three-wave correction follows every impulse. That’s precisely how things went for BYD, as well. The current decline looks like a simple A-B-C zigzag, whose wave C is still under construction. It seems to be headed towards the 61.8% Fibonacci support level near $17 a share. Fortunately, once the correction is over, the preceding trend resumes. Instead of extrapolating the current weakness into the distant future, it makes sense to expect a bullish reversal soon. BYD stock seems capable of reaching new all-time records in the long term.

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