Rational AG (DE:RAAG) is a German kitchen appliance and processors manufacturer, founded in 1976. With over 750,000 appliances on the market, the company is one of the leaders in the industry. Not surprisingly then, its stock price has been rising for quite a while now.
17 years ago, in March 2003, Rational stock fell to 25.32 euro a share. Last month it reached 740 euro a share. An investor holding the stock the whole time would have realized an annual compounded gain of 22% for a 2822% total return.
Unfortunately, trees don’t grow to the sky and no trend lasts forever. Rational stock is currently hovering slightly below 700 euro a share. The time is right to take a looks at it from an Elliott Wave perspective.
Rational ‘s weekly chart above visualizes the entire 17-year uptrend for us. The bulls have done an amazing job, but the result of their efforts should worry them. The rally from 25 to 740 euro a share looks like a textbook five-wave impulse pattern.
It is labeled (1)-(2)-(3)-(4)-(5), where sub-waves of wave 3 and those of wave 1 and 5 of (3) are also visible. According to the theory, every impulse is followed by a three-wave correction in the other direction. The support of the fourth wave is a natural target in the bearish phase of the cycle.
Here, it makes sense to expect a drop to 460 or lower. The RSI indicator reinforces the negative outlook with a bearish divergence between waves (3) and (5). If this count is correct, buying the stock near 700 euro a share is the exact opposite of rational.