The first time we wrote about The Trade Desk was in May 2019. The stock was trading above $220 a share and we thought a notable correction can soon be expected. That call was rather premature though, since the bulls added another $100 before giving up. However, by March 2020, TTD was down to $136, losing 39% since we published our analysis.
But boy, what an entry point that low turned out to be. The Trade Desk surged to nearly $973 by December 2020, up 615% in nine months. Unfortunately for the bulls, 2021 didn’t start the same way 2020 ended. Ten days ago, the price dropped to $561 for a 42% correction. Before the opening bell on Monday, it is still down some $220 from the record. Should investors buy this dip?
The daily chart above puts the post-March 2020 surge and the following drop in Elliott Wave context. The surge from TTD’ very IPO in September 2016 looks like a five-wave impulse in progress. The pattern is labeled (1)-(2)-(3)-(4)-5), where the five sub-waves of wave (1) are also visible.
The Trade Desk Shareholder Must Not Let Complacency Settle In
The rally from $136 to $973 must be wave (3), meaning the drop to $561 is wave (4). What is missing is the final wave (5). Fifth waves usually exceed the top of the third wave, so we can expect the bulls to conquer $1000 and maybe even go for $1100.
Instead of throwing a party to celebrate the new top, however, shareholders should be careful. The Elliott Wave theory states that a three-wave correction follows every impulse. Furthermore, it often erases the entire fifth wave. If this count is correct, a bearish reversal near $1100 should be followed by a ~50% plunge back to the support of wave (4) near $550.
We’ve already seen this pattern cut the stocks of Brookfield Partners, Cigna, SEI Investments and many others in half. Now it is sending the same warning about The Trade Desk. And let’s not forget that TTD comes with a forward P/E ratio of 133, which is quite expensive even for a fast grower.
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!