Long-Term Technical Analysis: Eastman Kodak (EK)

[Post Summary]

And my heart yearned for him.
—Song of Solomon

* * * * *

NEWS FLASH!

The motion picture industry is dead, dead, dead as Elvis and Hollywood is about to fall into the Pacific Ocean as a consequence of an epic earthquake about to hit Southern California.

Of course, this is a gross exaggeration of reality. Yet, apparently the shareholders of Eastman Kodak (NYSE:EK) are fearing the worst.

Could Kodak be but one Steve Jobs away from staging a massive recovery? Am I misguided imagining this possibility? Maybe so, maybe not. Either way, EK probably has further to fall before finally hitting bottom...




Let's begin with the Head and Shoulders top that formed in Eastman Kodak from 1987-2007. You can learn more about this technical formation in the investment classic written by Edwards and Magee titled, "Technical Analysis of Stock Trends." See also the Risk Averse Alert of December 16, 2008.

Volume registered during the formation of the head and right shoulder fit the qualifications specified by Edwards and Magee; likewise, too, did the elevated volume of shares exchanged when EK broke below its "neckline" (drawn above in green) during the first quarter of '08.

A head and shoulders top lends the analyst ability to project a minimal price target to which a stock's price will fall. Taking the distance between the peak of the head and the neckline, then projecting this same distance below the neckline at the point where price breaks below it, you arrive at the minimal price objective of the stock's subsequent decline.

You see this guideline in the chart of Eastman Kodak via the red lines drawn. Thus, EK is fast approaching its minimal price objective portended by its head and shoulders top. This, however, is not to say its price cannot fall beyond this minimal objective.

From an Elliott Wave perspective, you might consider the Fibonacci relationship (1.000:1.618) indicated graphically above. This suggests that, in percentage terms, Eastman Kodak still might have a good bit further to fall before at last reaching a bottom.

One final thing worth noting is the volume of shares registered during the third quarter of 2003 when EK fell to a bottom that more or less held for the next 4+ years. This apparently marked something of a selling "capitulation." Judging by how far Kodak has fallen, you might expect an even bigger "capitulation" as EK nears its bottom sometime during the months ahead.

—Tom Chechatka