We last wrote about Australian human resource consulting company SEEK Limited over three years ago, in September, 2019. The stock was hovering near all-time highs of ~A$21 a share and the bulls seemed unstoppable. Unfortunately for them, there was a complete impulse pattern on SEEK ‘s weekly chart, which meant a notable correction was supposed to follow. Elliott Wave analysis led us to conclude that “a decline to roughly A$11 can soon be expected.”
Little did we know that the catalyst for this crash was going to be a global pandemic. On March 23, 2020, SEEK bottomed at A$11.23, down 46% from where it was when we turned bearish. Fortunately for its shareholders, SEEK didn’t only participate in the Covid-19 crash, but in the following recovery, as well. In mid-November, 2021, the stock reached a new record of A$36.09. The bulls seemed unstoppable yet again.
SEEK Draws the Same Pattern in the Other Direction
Alas, no trend lasts forever. SEEK closed at A$20.72 last week, down 42.6% in less than a year. The question is, should investors expect a similar outcome and see this decline as a buying opportunity? Or is it something else? The good news is that the same pattern that helped us predict the Covid-19 plunge has emerged yet again. Only this time, in the opposite direction.
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SEEK ‘s daily chart reveals that the weakness between A$36.09 and A$18.78 is a textbook five-wave impulse. The pattern is marked 1-2-3-4-5 in wave A, and the five sub-waves of wave 3 can be recognized, as well. The theory postulates that a three-wave correction follows every impulse before the trend can resume. This means we can expect a notable recovery in wave B to lift the stock to the mid-to-high A$20s. The bullish MACD divergence between waves 3 and 5 supports the mid-term positive outlook.
On the other hand, once wave B is in place, the bearish 5-3 wave cycle would be complete. The bears should then return in wave C and drag SEEK stock to new lows in the mid-teens. Given the company’s stretched valuation, however, we wouldn’t be surprised to see an even bigger decline.
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