The Trade Desk sent shockwaves through the digital advertising market after it issued disappointing Q4 sales guidance. Following the news, the company lost over a quarter of its market value after the bell yesterday. The stock is expected to open in the mid-to-low-$50s per share today. But is the post-Q3 report crash such a huge surprise really?
After all, Elliott Wave analysis had warned us nearly two years in advance that the recent recovery was unlikely to last. First, back in March, 2021, it helped us to predict the bearish reversal near the $1000 mark as well as the following ~50% crash. That was before the company’s 10-for-1 split in June, 2021. It might have seemed like magic or just a coincidence to people unfamiliar with the theory. But in practice, it was just another case of a complete five-wave impulse pattern making way for a correction. It happens all the time in financial markets. Here is the chart we shared with readers back then.
According to the Elliott Wave principle, a three-wave correction follows every impulse. Here, waves (1), (2), (3) and(4) were already in place. It made sense to expect a new all-time high in wave (5). Instead of celebrating it, however, we thought The Trade Desk investors would be wise to take profits off the table. Corrections usually erase the entire fifth wave, which in this case meant that the stock was likely to be cut in half.
Then, in January, 2022, with TTD already down 47%, the updated chart below strongly implied that any recovery was likely to be short-lived and followed by another notable plunge.
The reason for our skepticism was that the drop from the top of wave (5) looked like a single wave, not three. Wave (b) was supposed to lift The Trade Desk stock higher, but the bulls couldn’t really be trusted. The bears would be eagerly waiting for their turn again in wave (c). The company’s weak Q4 guidance was the catalyst that allowed them to return with a bang.
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Wave (a) evolved into a leading diagonal, marked 1-2-3-4-5. Wave (b) was a simple a-b-c zigzag and helped The Trade Desk stock to more than double to almost $92 a share in July, 2023. As expected, however, the recovery ran out of power much earlier than the bulls had hoped. The crash we’re poised to witness today fits into the position of wave 3 of (c).
By the time wave (c) evolves into a complete impulse, the price is likely to have breached the bottom of wave (a). In other words, we don’t think investors should be in a hurry to buy The Trade Desk in the low $50s today. The crash can be expected to continue towards the low-$30s, before enough buyers finally emerge. Only then would the Elliott Wave cycle be complete and the way open for a meaningful new uptrend to begin.
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