St. Jude Medical Inc. makes, as the name indicates, a whole range of medical devices particularly with regard to cardiovascular applications. On that account the future should be bright. However the fellows/girls over at Muddy Waters think otherwise. Their concern seems to have something to do with hacking, to be more precise some form of electronic interference with their pacemakers and other implants, but whatever the rational, the main point is that they think this thing is overvalued. Is it?

On the left we have a chart by Google going back all the way to 1978, roughly an investor’s lifetime. We think there are 5 waves up even if we are open to slightly different subdivisions in this count. A confirming aspect is that wave 5 is equal to waves 1 and 3 combined in terms of total travel, a common occurrence. In the more detailed chart on the right there is, potentially, a fairly uncommon, expanding triangle 4th wave ( not to be confused with the Jaws of death pattern that, IMO, does not exist). Note also that both the RSI and MACD have recently fallen out of bed. In short we wholeheartedly agree with Muddy Water’s opinion on this stock, albeit for different reasons. Our target is first the low of the triangle at about $50, and then the low point of wave 4 at just under $30.

For complete disclosure we note that this is not the first time that we cover this stock. Last time was in 2012 when we got it completely wrong.