Four months ago, we published an article on SEI Investments (NASDAQ:SEIC), saying that the “stock can lose half its value in a recession.” At the time of writing, November 5th, 2019, the economy was still firing on all cylinders and most analysts saw nothing but blue skies.
And indeed, the unemployment rate was at a record low, the US-China trade war was easing and the stock market was at a record high. Furthermore, SEIC, in particular, is a great business with exceptional financials and a long track record of profitability. What then led us to such a bearish conclusion in early-November? Take a look.
SEIC’s weekly chart revealed something no Elliott Wave analyst can miss. The recovery from the bottom of the Financial crisis in 2009 to $78.35 nine years later was a textbook five-wave impulse. The pattern was labeled (1)-(2)-(3)-(4)-(5), where the sub-waves of waves (3) and (5) were also visible.
The Wave theory states that a three-wave correction in the opposite direction follows every impulse. So, we thought the decline to $42.27 by December 2018 must be wave (a) of a simple (a)-(b)-(c) zigzag. This, in turn, meant that once the recovery in wave (b) ended, another selloff in wave (c) would be very likely.
SEIC Stock Plunged Way Faster than Expected
The fifth wave is often erased completely by the subsequent retracement. So, a bearish reversal near $70, followed by a drop to ~$35 would translate into a roughly 50% loss for shareholders. The updated chart below shows how things went.
SEIC climbed to $69.52 in mid-February, 2020. Then, completely out of the blue, the coronavirus pandemic paralyzed the world. Stock markets around the world started crashing and SEI Investments crashed with them. In about a month, the company’s valuation was reduced by over 42%.
SEIC fell as low as $39.44 yesterday and is now approaching the 61.8% Fibonacci support level. Wave (c) already breached the bottom of wave (a), which means the 5-3 wave cycle that began in March 2009 is almost complete now. A bullish reversal in the $35-$30 area can be expected to give the start of a fresh new uptrend in SEI Investments.
In addition, the company just announced it is increasing its stock repurchase program by another $250 million. Apparently, it is not just us who think the shares are a good deal now.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!