The pandemic disruptions hardly put a dent in Arthur J. Gallagher’s business. Despite slightly lower revenues, one of the largest insurance brokers in the world achieved its highest profit ever in 2020. As a result, AJG stock climbed to a new all-time high of $129 in December.
Currently hovering around $116, the stock still looks pricey considering earnings growth of 16% over the past four years and a P/E ratio of nearly 28. So, from a valuation standpoint, investors would probably be better off keeping their powder dry for now. Let’s see how the situation looks like from a Elliott Wave perspective.
AJG bulls seems to be in even bigger troubles than the stock’s valuation suggested. The weekly chart above reveals that the uptrend from the 2009 low at $14.82 is shaped as a complete five-wave impulse. The pattern is labeled 1-2-3-4-5 and, according to the theory, should be followed by a three-wave correction in the other direction.
The negative phase of the Elliott Wave cycle typically erases the entire progress achieved by the fifth wave. Applying this to AJG stock makes us expect a decline back to the support of wave 4 near $65 a share. If this count is correct, a ~50% drop from the top at $129 seems to have just begun. The bearish RSI divergence between waves 3 and 5 only reinforces our skepticism.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!