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How "Fundamentals" Failed This Major Global Corporation

Take a look at this classic "bearish technical reversal pattern"

by Bob Stokes
Updated: August 08, 2019

Most investors believe a company's stock price follows its "fundamentals," like earnings, sales, shifting macro-factors and so on. And often, it's true.

But, the December 2018 Elliott Wave Theorist reminded subscribers that, especially for the market in aggregate,

Fundamentals follow technicals...

That can be very true for individual company stocks, as well. A case in point is German conglomerate BASF, which is not only the world's largest chemical company, it's also involved in plastics production, crop protection, auto emissions, battery technology plus oil and gas exploration.

Well, on July 8, BASF reported a 30% drop in adjusted annual operating profit. A 4% drop in the company's stock price happened to coincide with BASF's profit warning.

Here are some of the news reports from July 8:

  • "The projected drop in earnings... was mainly due to the trade conflicts." (Bloomberg)
  • "One problem has been the German economy, which still accounts for about 11% of BASF revenue." (Bloomberg)
  • "Investors have also been waiting for an improvement in the trade war. That will have a bigger impact on BASF..." (Reuters)
  • "BASF is challenged by continued slowing demand in the auto market, particularly in China..." (WSJ)

Notice that all of the news articles pointed to fundamentals to explain BASF's profit woes.

But one of EWI's global analysts argues that the cause is not fundamentals, but something else -- namely, investor psychology. This chart (wave labels available to subscribers) and commentary is from our August Global Market Perspective:

BASF

The fundamentals were destined to deteriorate ever since prices peaked near 100 in May 2018. In fact, that high formed a bearish technical reversal pattern known as a double top, and prices have since traced out [an Elliott wave pattern]. As we have said before, stocks are a leading indicator of social mood, which is why corporate weakness follows stock-price weakness.

Our analyst goes on to mention where he expects BASF's price to go next.

This forecast is based on the Elliott wave model, which all of our global analysts use to keep Global Market Perspective subscribers ahead of price moves in 40+ markets worldwide.

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