Facebook and Google are disrupting the advertising business in a way most companies in the industry never thought possible. To make things worse, large consumer companies such as Procter & Gamble and Kraft Heinz have reduced their marketing spending. As a result, traditional advertising companies face slowing revenue growth and uncertain future. Just what hedge funds have been looking for to bet against their stocks. According to the Financial Times, hedge funds’ combined short position against the world’s biggest advertising companies amounts to over $3 billion with Omnicom and Interpublic being the main targets. Here, we will see if the Elliott Wave Principle confirms the negative outlook maintained by the hedge funds.
There is a $426 million bet against the stock of Interpublic. The chart above suggests hedge funds might be up to something here. As visible, the price has drawn a five-wave impulsepattern since November 2008. Two degrees of trend can also be recognized within the extended wave 3. In the long-term, that is actually a good thing, because it shows that IPG stock is in an uptrend. In the short-term though, and that is the horizon hedge funds are usually more interested in, this pattern suggests a three-wave decline should soon begin. It could easily erase about 50% of Interpublic’s market capitalization. But the advertising company hedge funds are betting against the most is Omnicom.
With a $2.2 billion combined short position against it, Omnicom is the advertising company hedge funds hate the most right now. And we can understand why by looking at the chart above. Omnicom stock rose in impulsive fashion from $20.09 in March 2009 to as high as $89.66 in December, 2016. Naturally, a bearish reversal followed. By November 2017, OMC was down to $65.32 in wave A of what we believe is a three-wave A-B-C correction still in progress. If this count is correct, the recovery to $83.34 last month is wave B, which means another selloff in wave C should be expected.
In conclusion, despite the fact that both Interpublic and Omnicom stocks are trading near multi-year highs, they seem extremely vulnerable to bearish attacks. Omnicom might lose another 30%, but Interpublic investors should be prepared to see their holdings’ market value cut in half, making hedge funds with bearish bets against them very happy.