Charter Inc. Stock (CHTR) Falls to 3-1/2-year Lows: Opportunity Came to Those Who Waited
CHTR goes from 4 months of sideways to 26% selloff. This Elliott wave pattern explains why -- and where prices may go next
by Nico Isaac
Updated: November 09, 2022
On November 3, CNBC published an inspiring interview with longtime CEO of Charter Communications Inc. Tom Rutlege on how he got started in the cable industry nearly 50 years ago, and where he plans to go after retiring at the end of this year.
Of note, Rutlege's career in cable wasn't a straight line. As a high school graduate, he planned to stave off college for as long as possible to travel the world. He was on that globe-trotting path, the wind at his back, all open road, when a sudden family crisis changed his trajectory. He returned home, put his original plans on hold, and waited for the right move to present itself.
After what I imagine was a lengthy period of learning and exploration, Rutlege worked his way through college as a cable technician. He came to realize an innate affinity for the industry, and embarked on a career that would eventually set him securely in a multi-billion dollar direction.
If you tracked Rutledge's history on a line graph, it would unfold as follows:
- A strong uptrend. Clear, steady, and unmistakable
- Suddenly sidelined, followed by a lengthy phase of uncertainty and indirection
- Powerful and decisive move and start of an entirely new trend
It would, in fact, look a lot like one of the most recognizable of all 13 Elliott wave patterns; namely, a bullish contracting triangle. Pictured here, in a bull and bear market.
A triangle interrupts the dominant trend. They appear, much like those annoying, buzzing "Emergency Broadcast System" messages that always seem to occur right before the pivotal climax in the show you're watching.
Triangles progress sideways, in five waves, and can try the patience of peak-or-bottom chasing investors and traders. But, with triangles, the wait is worth it. Their build-up occurs in wave 4, B or X of an impulse or correction, thus preceding a final, powerful "thrust" for wave 5 or C to complete the larger pattern. Once a triangle is over, the market embarks on a new trend.
Now allow me to take the connection between Charter Communications and the Elliott wave contracting triangle one step further, directly onto the price chart of the cable giant's NASDAQ-listed stock CHTR.
After plunging like a parachuter without a parachute since Q3 2021, CHTR plateaued in early April 2022 and embarked on a long, multi-month crawl until mid-August. Starting to ring any bells? Well, on August 23, our Trader's Classroom editor Jeffrey Kennedy showed this chart of CHTR, paused the video, and asked his subscribers to label the sideways area highlighted in yellow.
After resuming the video, Jeffrey filled in the blanks:
"I may not know all the subdivisions, but what I do know is this has all the earmarks of a contracting triangle. Triangles only occur in a position prior to the final move of a wave sequence. So whenever you see a triangle take shape, that's going to give way to the final fifth wave move in a thrust."
This of course was a bearish contracting triangle!
Jeffrey then reveals the other cool trait of triangles; i.e. you can calculate a probable range where the final thrust will end. Here, Jeffrey offers this explanation using CHTR's chart:
"We're going to do something called a triangle thrust measurement... You draw your trendline from the extreme of wave A to the extreme of wave C, and then the extreme of B to the extreme of D. We call that the A-C, B-D trenline.
"We want to take the widest portion of the triangle and project it downward from the wave E extreme. So this gives us a level here of 353.15 as a nice minimum target."
And, this next chart captures how CHTR's path unfolded: the cable giant continued to collapse in a 26% selloff to 3-and-a-half years lows on October 12 in fine, final "thrust" form:
Recall how the thrust is followed by a trend change? In turn, from its October 12 low to November 1, CHTR rallied $73 per share before pausing.
As for CHTR's future? On November 2, Trader's Classroom illustrates how the contracting triangle played out in Charter's selloff and uses the "Guideline of the Depth of Corrective Waves" to determine how high prices may go. In Jeffrey's words:
"We're going to look for this market to trend higher, most likely into this area, as we trade into say December, January... and then boom! Down again we go."
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