We first wrote about Cboe Global Markets two years ago, in January, 2021. The stock had failed to join the general market’s surge to new records and given the company’s high quality, we thought the shares were a good deal at $97. And indeed, by August the same year CBOE had climbed 40% to an all-time high of $139 a share.
Alas, a decisive breakout above the resistance area near $140 did not materialize. A year and a half later now, CBOE trades below $123. As always, the only question is whether this dip is a buying opportunity or the beginning of a larger selloff. Judging by the Elliott Wave chart below, we think it is the latter.
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The weekly chart of Cboe Global Markets stock shows a five-wave impulse from $19.60 in 2010 to $138.54 in 2018. The pattern is labeled I-II-III-IV-V, where wave IV is an a-b-c-d-e triangle correction. The impulse naturally followed by a three-wave correction down to $72 a share in March, 2020. According to the theory, once a correction is over, the preceding trend resumes.
The problem is that the recovery from $72 to $139 doesn’t look like a new uptrend. First, it was limited to a three-wave structure. Second, the stock appeared slightly overvalued at prices approaching $140. This most likely means a larger corrective pattern is still in progress, probably an expanding flat. If this count is correct, waves A and B are already in place. So, we can expect an impulsive decline in wave C back to the 61.8% Fibonacci level near $65-$60 a share. This would translate into a ~50% drop from the current level.
Another reason not to be too optimistic about Cboe ‘s mid-term prospects is the nature of its business. Cboe Global Markets is the largest options exchange in the world. The more people trade, the more money the company makes. The problem is that trading-related businesses don’t do so well when interest rates are rapidly rising.
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