Essex Property (NYSE:ESS) saw its stock price drop to as low as $176 during 2020’s Covid selloff. From the October 2019 all-time high of $334, that was a 47.3% total decline in less than five months. Fast-forward to today, it feels as if 2020 was just a bad dream.
The stock is hovering around $307 right now, up 74.4% since the March 2020 bottom. It looks like it is just a matter of time before Essex Property reaches a new record. Should investors jump in once that happens? The Elliott Wave chart below makes us err on the side of caution.
ESS’ monthly chart reveals its entire progress since its 1994 public debut. This is one of the best apartment REITs out there, so not surprisingly, most long-term investors have enjoyed spectacular gains. On the other hand, those unfortunate enough to have bought in early-2007 or late-2019 did significantly worse than average.
New Essex Property Investors Might Do Worse than Average
And judging from the chart above, buying in late-2021 or 2022 might yield similarly disappointing results. Not because something terrible is about to happen to the company. It is because of the five-wave impulse the stock is about to complete.
The pattern is labeled I-II-III-IV-V, where wave II corresponds to the 2008-9 Financial crisis, while wave IV is the 2020 Covid panic. The impulsive structure of wave III is visible, as well. If this count is correct, the surge we’re currently witnessing must be part of wave V.
It is supposed to exceed the top of wave III, meaning targets above $334 and possibly close to $400 a share are plausible. On the other hand, the theory states that a three-wave correction occurs after every impulse. So instead of celebrating the new high, we think the bulls should take defensive measures and maybe take some profits.
The anticipated correction has the potential to erase most or all of wave V’s gains and drag Essex Property back to the support of wave IV. From a high of roughly $400 to a low near $200, that would be a ~50% plunge. Not something most people want to experience firsthand.