We have been consistently wrong on this stock. It seems to always go higher than one would expect. This time there is again a very nice EW count with a fifth wave diagonal (wedge) into the top, just a dollar shy of the super Mnt. Everest high of 1000. The p/e is at 187X , totally ridiculous by any known standard.

We are not wedded to this precise count as shown as the subdivisions could be slightly different, but when all is said and done this stock is most definitely not a buy. In the last two years at has been climbing in a near vertical fashion, more than tripling so when you do reach the top the first target is 700, next 500 and, as is most often the case, 300 where the 4th of previous resides.

By the way, if the 5th wave diagonal assumption is correct, we have a situation where wave 1 is about 400 points, wave 2 is about 350 points ergo wave 3 must become less than 350 points. As it already has travelled about 300 points it can only go up another 50. Moreover it is already causing a “throw-over”of the upper line.

Below is another acceptable count now that we found a longer chart;

Then July 24, 2015 and now charts.

The high was $580 on the exact date of the previous blog. Today we hit $513 so that is a loss of $67, or 11.55% in 18 days. How did we guess? First EW but secondly the very simple fact that RBCDS put this stock on their list as the top pick. We expect $300 soon as that is the base of the triangle in the chart. In case you are confused, when RBC designates a stock as a top pick it means that they like it a lot, it does not mean that they think it just topped. A month or two from now it will quietly be removed and replaced with another momentum stock that happens to be in the limelight, without an explanation of what went wrong.

So it did not stop at about $500. In fact it shot up another $100 in overnight trading only to loose a good part of that even before the markets opened the next day. This is pure vertical and, perhaps, a “throw-over” depending how you draw the trend lines. At $260 bln. it’s market cap exceeded that of Wallmart, the World’s largest retailer and the US’ largest employer, by some $30 bln. Reportedly the main shareholder’s wealth increased by roughly $7 bln. in one single day, albeit only briefly. The detailed chart is more revealing;

A number of things point to this being a top. We are at the trendline, at least we were briefly in after hours trading. If there is a triangle, we are vertically above it’s apex. There are three gaps in this wave up. The RSI is overbought and was so three times in the last 1/2 year. The MACD is deteriorating. The $100 gain overnight representing something like 17 to 20% of the value is completely disproportionate to the improved earnings as reported that day.

When the market sobers up on this stock we would expect it to be back at $300. That does not really change even if the stock has one more move up. This is RBC’s top pick. It wasn’t that long ago that they had little to say about .coms or internet companies. Now they want to display their financial acumen and simple have become part of the momentum problem. Their is an enormous self-fulfilling element in these situations and you play this musical chairs game at your own risk, they benefit both ways.

For full disclosure see previous blog of some three years ago which was dead wrong. This time we have a few more things to hang our hat on. First and foremost, as always, it would appear that a five wave sequence is coming to an end. The exact subdivisions are debatable but not that sequence and the channel. Shorter term we have a very nice triangle that, under the circumstances, almost has to be a fourth wave. The “thrust” out of the triangle is much bigger than the triangle’s mouth measures and will probable develop as a 1.618x multiple thereof. The fifth wave itself could be coming to an end soon if the count shown is correct. Wave 3 is shorter than wave 1 so wave 5 has to be shorter than wave 3. Alternatively we are about to complete 3 and still need 4 and 5. Given the trend lines, the position right above the apex and the fact that we will soon be at $500 we think it is a sell at that level or just below.

By the way, this stock is up more than $200 over the last 6 to 7 months and is now approaching JP Morgan in terms of market cap. Annualised this increase approximates 150% which is  more than the Shanghai index did. Everything is relative.

If you want to stay in this space, BABA may be a suitable alternative;

It appears to have already completed 5 waves down and could therefore climb back to at least $95. Yahoo is looking to unload the shares it owns by creating a separate company. If they get the OK to do that as a tax-free roll-over the $32 bln. in stock should be absorbed relatively easily. The IPO price, incidentally, was $68.