Investors in Block Inc., formerly Square, saw their fortunes rise tremendously in the first year and a half of the pandemic. The stock surged from a low of $32.33 in March, 2020, to over $289 in early-August, 2021. Alas, that phenomenal uptrend proved unsustainable. As the world slowly started going back to normal, SQ quickly started crashing.
And of course it did. Block made just 33 cents of earnings per share in 2021. This means that at $289, investors were paying 875 times the company’s annual profits for the privilege to own the stock. That’s nearly nine centuries’ worth of future income. When Warren Buffett talks about having a long-term horizon, that’s not what he means. Regardless of its future potential and growth rate, Block was clearly a bubble stock in mid-2021.
When a bubble bursts, and they all do, it is always painful. A few days ago, Block fell below $39 a share, down 87% from its 2021 all-time high. It is likely that investors who bought above, say, $200, have either already sold at a loss or won’t break even for years to come. Even the mighty Microsoft needed 17 year just to recoup its Dot-com crash losses. On the other hand, it was a steal in early-2009. Can we say the same about Block in late-2023?
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It wasn’t just Block that was in a bubble in 2021, the entire fintech sector was. For instance, the chart above looks quite similar to PayPal’s. It reveals a five-wave impulse pattern, labeled I-II-III-IV-V, up to $289 and change, followed by a simple A-B-C zigzag correction. The five sub-waves of III, A and C are also visible and marked 1-2-3-4-5. Wave B is an a-b-c-d-e triangle pattern.
If this count is correct, Block has just drawn a complete Elliott Wave cycle. According to the theory, we can expect the uptrend to slowly resume from here. Besides, triangles precede the final wave of the larger sequence. This increases our confidence into the count, since in this case, the final wave is C. While another approach to $300 feels like science fiction right now, a recovery to the $90-$100 resistance area is not so far-fetched.
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