Founded in 2000, NovoCure (NASDAQ:NVCR) develops treatment for tumors using specific frequencies to disrupt cancer cell division. The company went public in 2015 and, after a disappointing 2016, has been making investors very happy ever since.
On the other hand, the stock fell over 15% yesterday despite positive TTFields liver cancer study results. Normally, an illogical market reaction like this one would be seen as a buying opportunity. A quick look at the chart below, however, makes us think that is not the case here.
NovoCure ‘s daily chart reveals that the uptrend from below $6 to almost $233 a share is a complete five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are visible, as well. What the bulls should worry about is that a three-wave correction follows every impulse.
Corrections usually erase the entire fifth wave and reach the support area of the fourth. This means today’s tumble might be the start of a bigger decline in NovoCure stock. If this count is correct, we can expect more weakness towards ~$120. From current levels, that is a drop of nearly 40%.
Besides, NovoCure ‘s valuation was too high to begin with. Even after today’s plunge, the stock trades at 2021 price to sales of 40. Paying such a high price means good results for patients might not translate into good results for investors.