Realty Income Corp (NYSE:O) is a REIT dedicated to delivering dependable monthly dividends to investors. The company owns over 5900 real estate properties and has a market value of roughly $23.5 billion. Adjusted for splits, it went public in 1994 at $8 and reached an all-time high of $76.73 two days ago.
Not counting the dividends, which for REITs are pretty significant, Realty Income has delivered an average annual compounded return of 9.42% over 25 years, easily beating the S&P 500’s return of 7.86% per year over the same period.
However, just as any other security, the stock has had its rough spells. Between September 2008 and March 2009, Realty Income lost 59.1% of its valuation. The second notable decline erased 34.6% from August 2016 to February 2018.
Realty Income has an Elliott Wave Problem
With the stock currently at $75, is this a good time for investors to add Realty Income Corp. to their portfolios? Let’s see what the Elliott Wave principle has to say on the subject.
The weekly chart above reveals Realty Income’s entire progress since the 1994 IPO. It looks like the past 25 years have resulted in a textbook five-wave impulse. The pattern is labeled (1)-(2)-(3)-(4)-(5) and the five sub-waves of wave (3) are also visible. Note how waves (2) and (4) terminated shortly after touching the 61.8% and 38.2% Fibonacci levels, respectively.
This pattern means Realty Income’s larger trend points north. No surprises here – the company is profitable, financially stable and well run. The problem is that according to the theory, a three-wave correction follows every impulse.
If this count is correct, we can expect a notable decline in Realty Income stock very soon. There is also a bearish MACD divergence between waves (3) and (5) to back up the negative outlook. The support area of wave (4) near $45 a share is a natural bearish target. This means the company can lose roughly 40% of its market cap from current levels.