The first time we wrote about SEI Investments, in November, 2019, Elliott Wave analysis somehow warned us about the crash of 2020 before we had even heard about Covid-19. The second time we wrote about it was in the midst of the 2020 panic, when the Wave principle put us ahead of the following recovery. But to be honest, we were expecting more from SEIC stock as the general market indices pushed higher in a stimulus-fueled frenzy.
Alas, the stock is up by less than 70% from its 2020 low, while the S&P 500 has more than doubled. The good news is that this high-quality software and asset management company is not forever doomed to underperformance. In fact, its big picture Elliott Wave outlook suggests that its valuation might soon grow by a third.
When we wrote about SEIC stock in March, 2020, we thought the retracement was about to end in the mid-$30s. And the stock really did find a bottom at $35.40. As turned out, however, the preceding uptrend wasn’t ready to resume yet. Instead, the market decided to extend the correction into a (w)-(x)-(y) corrective combination, where wave (y) is a triangle pattern, marked a-b-c-d-e. An interesting aspect of this chart is how waves ‘a’ and ‘e’ of (y) end at the 61.8% and 38.2% retracements of wave III, respectively – both key Fibonacci support levels.
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This entire structure fits into the position of wave IV, following a five-wave impulse, labeled (1)-(2)-(3)-(4)-(5) in wave III. The five sub-waves of wave (3) of III are visible, as well. The seeds for wave III were planted during the 2008 Financial Crisis, which stands for wave II. And prior to wave II, there was, of course, wave I, which was also a five-wave impulse, as the logarithmic chart below illustrates.
Similarly to wave III, the five sub-waves of wave I are also marked (1)-(2)-(3)-(4)-(5). If this analysis is correct, we have waves I-through-IV already in place. What’s missing is the fifth and final wave. This means we can expect a new all-time high near $80 a share in the months ahead. From the current price of ~$59, SEIC stock can rise by as much as 35%.
The new record should not be seen as a buy signal, though. The Elliott Wave theory states that a three-wave correction follows every impulse. The impulse patterns in waves I and III were followed by corrections in II and IV, respectively. In the same way, but on an even bigger scale, the end of wave V would mark the beginning of another notable decline back to the low-$40s. So, instead of joining the bulls near the $80 mark, investors would do well to take profits off the table. Until then, SEIC stock remains in an uptrend.
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Disclaimer: The author holds a long position in SEI Investments stock in The EWM Interactive Stock Portfolio.
