Interpublic and Omnicom used to be the giants of the advertising world. In the old economy, their competitive advantages seemed indestructible. Then, the Internet revolution came along and Facebook and Google created a lot of problems.
However, their stocks were still making new highs until two years ago. Interpublic stock, for instance, was hovering around $24 a share in March 2018. That is when we first heard that some large hedge funds had placed big bets against the two firms. A quick look at the charts convinced us the shorts were really up to something.
Let’s focus on Interpublic. The chart above was published on March 13th, 2018. In revealed a complete five-wave impulse to the upside, labeled 1-2-3-4-5. Two degrees of trend within wave 3 were also visible. Wave (v) of 3 was an ending diagonal.
Wave 5 had just reached a new high, thus completing the pattern, which had been in progress since November 2008. The elephant in the room was the fact that the Elliott Wave principle states that every impulse is followed by a three-wave correction.
Hedge Funds’ Bets Against Interpublic Paid Off in Spades
So instead of joining the bulls near $24 a share, we thought a major retracement should be expected in the years ahead. Our rough estimates suggested “It could easily erase about 50% of Interpublic’s market capitalization.” The next chart shows how the situation developed.
The bears couldn’t achieve momentum right away and Interpublic appeared to be in no-man’s land until February 2020. Then the coronavirus panic triggered a selloff to as low as $11.63 a share in March 2020. In just two years, Interpublic shareholders saw the value of their holdings tumble 55%.
The decline from $26.01 can be seen as either a simple A-B-C zigzag or a regular flat correction. In both cases, the 5-3 wave cycle, which began in late-2008, appears to be complete now. According to the theory, we can now expect the price to move in the direction of the impulsive sequence.
Besides, Interpublic’s revenue rose from $7.6 to $10.2 billion between 2015 and 2019. This shows that the company is able to adapt in this rapidly-changing environment. Strong fundamentals and a bullish Elliott Wave setup make the stock a promising long-term bet.
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!
