We first wrote about Intercontinental Exchange (NYSE:ICE), the owner of the NYSE, a year and a half ago. A quick glance at the company’s financial statements showed that its fundamentals were solid. Unfortunately for the bulls, we thought that wasn’t enough to compensate for the risk posed by ICE stock ‘s stretched valuation. Even an unexperienced analyst could’ve made these observations. That’s investing 101.
What grabbed our interest, however, was a not that well-known shape on ICE’s weekly price chart. Most people haven’t even heard of Elliott Wave patterns, not to mention be able to recognize them. It was one such pattern, however, which made us think the end of ICE stock ‘s relentless uptrend might be near. Take a look below.
The particular pattern we spotted over 18 months ago was a five-wave impulse, which we marked I-II-III-IV-V. According to the theory, a three-wave correction in the opposite direction follows every impulse. On top of that, most corrections usually erase the entire fifth wave.
Staying Ahead of the Bearish Reversal in ICE Stock
The stock had just reached a new record above $120. Instead of joining the bulls and hoping for more gains, however, we thought a bearish reversal was likely to occur soon. That “soon” took another six months until November, 2021, when the bears did finally return. ICE stock fell from the vicinity of $140 to as low as $88.60 a couple of weeks ago. Unfortunately for shareholders, we still don’t think ICE stock is a buy.
The reason for our continued pessimism is the fact that the recent drop doesn’t look like a complete correction. It appears to be only its wave A, whose sub-waves can be labeled 1-2-3-4-5. If this count is correct, waves B up and C down have yet to develop. This means we can expect a notable, but deceiving recovery, to be followed by another selloff towards the support of wave IV near $60.
Once there, the 5-3 Elliott Wave cycle would be complete and the uptrend should resume. Besides, overvaluation would no longer be an issue. We remain on the sidelines until then, though, as the current price carries more risk than reward potential.