BlackRock is Down by $300, Can Lose Another $300

Bearish   

BlackRock is the undisputed king of the asset management industry. With assets under management (AUM) approaching $9.6 trillion as of March 31, 2022, the company’s reach and scale give it a massive competitive advantage. The second biggest player in the filed, Vanguard, manages roughly $1.5 trillion less than BlackRock. Also a very respectable amount, to say the least.

But asset managers are notoriously dependent on the whims of the financial markets. Their revenue is derived from the fees they collect as a percentage of the assets entrusted to them. A general decline in the stock and bond markets leads to a drop in AUM, which in turn leads to a drop in fees, revenue and profits at these companies.

The actual damage this year’s market weakness inflicted on BlackRock, if any, has yet to be revealed. Investors, however, have already punished the stock preemptively. In the six months between mid-November 2021 and mid-May 2022, BLK fell from an all-time high of $973 a share to as low as $583. As of this writing, the stock trades near $665 and is still down by over $300 from its record.

Given BlackRock ‘s dominant market position and strong balance sheet, many understandably see the stock’s recent decline as a major buying opportunity. Alas, the Elliott Wave chart below suggests otherwise.

BlackRock stock has entered Elliott Wave correction

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This chart reveals BLK’s progress since the company went public in 1999. Apart from the fact that its surge has been relentless over the past two decades, it is also worth mentioning that the stock has had its downturns, as well. It fell 62% during the 2008 Financial Crisis, lost 44% in 2010-2011, dropped by 39% in 2018 and plunged by 44% again during the March 2020 Covid-19 panic.

BlackRock is a Best-in-Class Company on its Way to the Bargain Bin

But sooner or later, BlackRock has successfully recovered from any single one of these crashes. This only confirms the rule that buying quality companies when they’re marked down is a great long-term investing strategy. No wonder many see the current one as a chance to get on board.

Unfortunately, we don’t think the recent selloff is over just yet. That is because the prior uptrend, the one that started in 1999, looks like a complete five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are also visible. Wave II corresponds to the 2008 crisis, while wave IV culminated in the 2020 Covid crash. Wave V is the extended one in this sequence.

According to the theory, a three-wave correction follows every impulse. “Three-wave” is the key word here. BlackRock ‘s post-$973 weakness looks more like a single wave А. If this count is correct, we can expect more downside in wave C as soon as wave B is over. Besides, corrections usually erase most or all of the fifth wave. In BLK’s case, this would translate into a decline to the support area of wave IV near $360 a share.

In other words, despite being down by about $300 from its November 2021 record, BlackRock stock can lose another $300 before the bears are done. A drop below $400 would mean a P/E ratio around 10. The stock would be a real bargain then, but not yet.

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