Our first and only article on NovoCure (NASDAQ:NVCR) stock was published almost three months ago, on July 1. In it we shared our view that the tumor treatment company was not only significantly overvalued, but in immediate danger of a large stock price drop.
The stock had just fallen 15% in one day, despite positive TTFields liver cancer study results. Given the company’s promise, however, most investors saw this dip as a buying opportunity. We, on the other hand, after taking a look at the Elliott Wave chart below, thought NVCR can quickly lose another 40%.
NovoCure ‘s daily chart revealed a complete five-wave impulse pattern, labeled I-II-III-IV-V. According to the theory, every impulse is followed by a correction, which usually erases the entire fifth wave. Hence, instead of joining the bulls near $190 a share, we expected “more weakness towards ~$120.” As it turned out, we didn’t have to wait too long for this bearish setup to bear fruit.
NovoCure stock just kept falling. Last week, it plunged to barely above $123 a share, down 35% since we wrote about it and almost 50% from its June record. The gains achieved by wave V have been almost entirely erased. However, we still don’t think it is time to invest in NVCR stock.
50% Crash Still Not Enough to De-Risk NovoCure Stock
Corrections consist of three waves, not one. The recent selloff, even though it reached our initial target area, doesn’t look like a complete retracement. It makes more sense to label it as just a first wave – A – of a simple A-B-C zigzag still in progress. This would mean a recovery in wave B, followed by more weakness in wave C, can be anticipated. Let’s try to confirm this with the help of the 4-hour chart below.
NovoCure ‘s 4h chart depicts not only the impulsive structure of wave V, but also that the following crash is also a five-wave pattern. Wave A is marked 1-through-5, where the five sub-waves of wave 3 are visible, as well. This strengthens our conviction that the bears are still not done with NVCR stock yet.
Wave B can lift the price to $160 and even $190. Alas, the bulls’ optimism is likely to be short-lived as another plunge to under $100 would be around the corner. Besides, even after the recent crash de-risked NovoCure somewhat, the company is still trading at price-to-sales ratio of 24.