Five Months Ahead Of HollyFrontier's Collapse
EWM Interactive | Mar 10, 2020 06:33AM ET
Oil stocks plunged across the board Monday following an epic OPEC+ negotiation failure. The price of oil was down over 31% yesterday after Saudi Arabia launched an all-out price war. One of the many casualties was HollyFrontier (NYSE:HFC) which we covered over five months ago.
HFC tumbled almost 16% to close Monday’s session at $24.10. And while the oil price war was a true black swan, HollyFrontier ‘s selloff wasn’t such a big surprise. In fact, when we wrote about it in late-September 2019, the stock was “concluding a bearish Elliott Wave cycle.” Take a look at it below.
Five and a half months ago, HollyFrontier’s daily chart revealed an almost complete 5-3 wave cycle. A five-wave impulse to the south between $83.28 and $37.73 in wave (A) was followed by a simple A-B-C zigzag in wave (B). According to the Elliott Wave principle, the downtrend was supposed to resume once wave C of (B) ended.
This made us conclude that “despite being down 36% since June 2018, HFC can still lose half its market value.” A bearish reversal near $60 a share was supposed to trigger another selloff in wave (C) to $30 and below. The updated chart below visualizes what no HollyFrontier shareholder wants to see.
Wave C of (B) peaked at $58.88 in late-October 2019. The upper line of the corrective channel proved too solid for the bulls to breach. The lower line, on the other hand, gave up in the first days of 2020. From then on, there was nothing to stop the bears.
As visible, HollyFrontier stock was already in the doldrums by the time the OPEC-Russia negotiations collapsed. The oil price war simply accelerated the decline. The Elliott Wave patterns, however, warned investors that a crash was coming before it even started. Those who cared to look, at least.
In the meantime, the world keeps consuming about 100 million barrels of oil per day. HollyFrontier survived the 2008 and 2016 downturns. It is not overly-indebted now and should be able to survive this one, as well. We don’t think this stock is going to zero. Assuming wave (C) roughly equals wave (A) a bullish reversal in the mid-teens seems likely.
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