Glencore (LON:GLEN), the world’s largest cobalt miner, plunged by as much as 13% in intraday trading on Tuesday after the news spread that the company has received a subpoena from the U.S. Department of Justice. Authorities are requesting documents regarding Glencore’s business in Congo, Venezuela and Nigeria as the company is under suspicion of corrupting government officials in the three countries to win contracts.
However, analysts at Barclays and Credit Suisse pointed out that such requests are actually quite common. Glencore has not been found guilty of anything yet and the sharp selloff in its share price looks like an overreaction by investors.
This makes us wonder why did the market react so violently to something which might or might not be such a big deal. Ralph Nelson Elliott once wrote that “the habit of the market is to anticipate, not to follow.” Was the market already anticipating bad news in the days leading to the current plunge? In order to find out, we need to put it into Elliott Wave context.
The daily chart allows us see Glencore’s rally from 66.7 GBp in September 2015 to as high as 416.9 GBp in early-2018. It could easily be seen as a five-wave impulse pattern with an extended third wave, whose sub-waves are also clearly visible. This means the current subpoena-inspired crash must be part of the three-wave correction, which naturally follows every impulse. It looks like the stage was, indeed, set for a decline. Glencore stock was supposed to drop with or without the DOJ investigation. In this respect, the subpoena is only a catalyst for what had to happen anyway.
Now, the next support lies near the termination area of wave (iv) of 3. This leaves the door open for the bears to drag the share price to possibly 270 pence in wave C in the short term. The long-term outlook, on the other hand, remains positive, because according to the theory the uptrend should be expected to resume as soon as wave (2/B) is over.