As a consumer products manufacturer Clorox Co . (NYSE:CLX) is one of the so-called “defensive” companies, whose sales are generally not dependent on the state of the economy. However, this doesn’t mean Clorox stock cannot fall during a general market decline or a recession.
For instance, it lost 57% in the 1999-2000 rout and over 34% during the Great Recession. And while Clorox stock is up 230% since March 2009, numerous recession indicators flashed red in 2019. Can investors expect a decline in 2020? Let’s see what the Elliott Wave principle has to say on the subject.
The weekly chart above reveals that Clorox’s uptrend from the bottom at $28.38 in December 2000 is a five-wave impulse pattern. It is labeled (1)-(2)-(3)-(4)-(5), where the sub-waves of (1) and (3) are visible, as well. The guideline of alternation has also been taken into account. Wave (2) was a sharp decline, while wave (4) – a running flat correction.
“Defensive” Clorox Stock Looks Vulnerable Heading into 2020
Wave “c” of (4) ended at $113.57, which means the following swift rally to $167.70 must be wave (5). The Wave theory states that every impulse is followed by a three-wave correction in the other direction. The chart above suggests the corrective phase of the cycle has already begun.
Clorox stock went practically nowhere in 2019 and if this count is correct, we’re not optimistic about 2020 either. Corrections typically erase all of the fifth wave’s progress. Here, this means the bears can drag the price down to the support of wave (4) near $110 a share. Besides, Clorox is a no-growth company trading at a high-growth P/E multiple of 24. Unless “it is different this time”, the stock can lose a quarter of its market value over the next year or two.