GRVG

It seems the stock has finished its H&S pattern, and is likely to resume an uptrend. There’s really not that much new info to share, but three things stand out. First of all, there’s the technical picture:

grvg

There are several things we can see here. The H&S pattern is complete, and although it went further than the first resistance zone at 5.50, it was stopped at 5.00 and quickly rebounded back. This is most likely the final phase of the 5-3 growth wave, which means a continuation of the uptrend is most likely.

Second thing that stands out is the last month’s financial report, which is quite good. Revenues are up slightly, and profits are up significantly. This is exactly what I’ve been talking about, a firm with a very low P/S ratio needs only a tiny increase in profitability for a drastic increase in P/E.

http://www.gorenjegroup.com/en/media/press-releases/2014/11/6360-Gorenje-Group-performance-in-the-period-January-September-2014

Finally, there’s the Russian crisis. I think it’s overblown. Yes, Russia is an important market for Gorenje, and this will likely decrease the profits and the revenues in the near future. However, I don’t think it will be nearly as significant an event as most people seemed to think when they were selling rubles for 70$. At worst, we’ll be back in the high sales / low profit zone for a few quarters. Considering how the stock is priced, it’s really not a singificant cause for concern.

However, if the situation seriously deteriorates and the stock bottoms out below 5.0 (which is possible however unlikely), the next downward target is the super heavy 4.0 to 4.5 resistance zone.

GRVG

 

Although I consider this stock to be a great long term investment, I believe there may be a short term cause for concern. The whole idea is best summarized in the following picture.

grvg

Basically, we’re dancing on the supportive trendline, and may have even breached it already. The next few days will likely be crucial in deciding whether that breach is real or just random white noise on the trendline verge. Should that breach happen, what we have in front of us is a pretty nice example of a head & shoulders pattern. The target of that pattern is approximately 0.7 euros below the trendline, which amounts to approximately 5.8 euros. Furthermore, it is also a support level formed by the preceding two tops (and perhaps one bottom which forms another close resistance at 5.5 euros).

In the long run, this drop would be the completion of a wave 4 of a standard 5 wave growth pattern. I believe such a drop might correspond to a long awaited correction of US indexes. But even though such a breach may bring the stock down somewhat, I consider this a short term event, which is actually a good trading or late entrance opportunity in the 5.5 to 5.8 range.