Medium term
Trade view / 18 August 2016 at 6:18 GMT

Time to go bearish on power company ABB

Instrument: ABB:xome
Price target:
Market price:

Just as we turned bullish on ABB (ABB:xome) in January one has to be wary of signals turning sour once again.

The stock of ABB peaked on June 4 last year following a nice spike higher. The subsequent decline came in what appears to be five waves lower into a low on January 21.

The decline took 231 calendar days and since it came in five waves, we are alert to a situation where we get signals of a completed three wave structure higher.

The advance higher has now been on for 204 calendar days (the time peak is August 12) which align to the 231 day decline at 180 degrees from a Gann cycle perspective.

We are at an inflection point here. To really prove it's worth as a stock that is going substantially higher, it has to advance for more then 231 days - and it hasn't yet.

If this has only been a bounce in a bear market, a 180 degree alignment is where we would expect a reversal. Having said this, higher prices above the time peak of August 12 and the price peak of August 15 means we are most likely going higher still.

From a price perspective we saw the January low at SEK 136, the peak on August 15 came in at just above SEK 187. A 360 degree alignment which is a point from where weakness should transpire.

From an Elliott wave perspective we could make the case of an ABC structure higher with a five wave structure to complete the pattern off the July 6 low. 

Management and risk description

The conclusion here is that the stock of ABB could have peaked and that risk/reward favours shorts on many time frames. Given the completed five wave pattern off the July 6 lows, we are looking for at least a short-term pull back. 

The plan is to short ABB at market but below SEK 188, with a stop upon a daily close above SEK 190 and targets of SEK 180, SEK 176, SEK 169 and SEK 163.

The main risk to this setup is broad equity strength. If we despite the signals go higher from here day 233 calendar days (September 10) from the January lows are the next cycle date of importance.

Entry: Sell below SEK 188.

Stop: Daily close above SEK 190.

Target: SEK 180, SEK 176, SEK 169 and SEK 163.

Time horizon: One to six weeks depending on target.

ABB daily chart
ABB:xome daily chart
ABB daily development chart
ABB:xome daily development chart
 Source: Saxo Trader - create your own charts with SaxoTrader. Click here to learn more 

— Edited by Adam Courtenay

For more on equities click here         

Non-independent investment research disclaimer applies. Read more
Johan Berntorp Johan Berntorp
Yesterday turned out to be a potential sweet spot for shorts. In best case for the bear camp we have now embarked on a wave 3 lower, currently within a wave 2 bounce within that 3rd wave. Price has no business going back up if the tape is bearish. One can put a hard stop at SEK 188 as opposed to the stop suggested above (daily close above SEK 190).
Johan Berntorp Johan Berntorp
Got stopped out here but not chasing this particular stock higher. R/R is poor...


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