When we shared our bullish opinion about leading online travel agency Booking Holdings, in early-April 2020, the world was gripped by panic. Covid-19 was officially out of control and a deadly global pandemic was about to sweep the globe. Countries rushed to close their borders, flights were grounded, businesses were being closed and people were going to stay home for who knows how long. No wonder that in the first quarter of 2020, the stock price of Booking had been cut almost in half.
On the other hand, financial history shows that markets tend to bottom out long before the accompanying crisis is over. The Great Depression lasted through most of the 1930s, but the market found a bottom as early as 1932. World War II ended in 1945, but stocks stopped falling and bounced up three years earlier, in 1942. The Great recession reverberated until 2013, but the stock market indices reversed to the upside in early-2009.
With that in mind, we thought that by the time the pandemic was over, the stock market would’ve already risen substantially. This is the logic we followed when we added Booking, among others, to The EWM Interactive Stock Portfolio in the spring of 2020. It looked cheap below $1400 a share and its rock solid fundamentals could keep the company alive for at least two more years of total lockdowns, if necessary.
Fortunately, less than two years later, Booking was not only still in business, but the stock had reached a new all-time high above $2700. Currently at $2450, it is still up by nearly 80% since our article. For comparison, the S&P 500 has gained just 52% over the same time period. Turns out that the crazy idea of buying a travel company when there is no travel produced a market-beating result.
How Long Before the Bear Comes for Booking Again?
Alas, another important history lesson states that no trend lasts forever. Despite its strong business and market position, Booking is far from the high-growth startup it once was. It’s been almost 21 years since the stock bottomed at $6.30 a share in October, 2002. We’re naturally wondering what’s left of that phenomenal uptrend. How long before the next major correction erases 50% of the company’s valuation again?
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In order to answer that question, we had to examine Booking ‘s weekly logarithmic chart. It shows the stock’s entire progress since the bottom of the Dot-com crash at $6.30. As visible, the price appears to have drawn a complete five-wave impulse pattern, labeled (1)-(2)-(3)-(4)-(5). The five sub-waves of (1) and (3) can be recognized, as well. Even wave 1 of (3) can be marked i-ii-iii-iv-v.
Wave 3 of (3) looks shorter than both 1 and 5, but that is only because of the logarithmic scale of the chart. In actual dollar terms, it is longer than wave 1 by $95, so there is no violation of the Elliott Wave rules.
If this count is correct, the Covid-19 panic of March 2020 marked the end of wave (4). The following surge to $2716 in February, 2022, must be part of the final wave (5). According to the Elliott Wave theory, a three-wave correction back to the support of wave (4) can be expected once wave (5) is over. Booking stock is up 20% this month alone and it looks like a new record is only a matter of time.
No Time for Celebration
Considering how choppy and overlapping the structure of the post-pandemic recovery has been, this suggests that wave (5) is most likely developing as an ending diagonal. This means that BKNG can probably add another 20% and reach the $3000 mark. Instead of celebrating this milestone, however, we think investors should prepare for a major bear market. A correction to the support of wave (4) near $1000 would erase two-thirds of Booking ‘s market value.
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