Yesterday, we talked about Interpublic (NYSE:IPG) and how Elliott Wave analysis warned us about its stock’s collapse two years in advance. Today, we are going to focus on Omnicom, which looked vulnerable to us in March 2018, as well.
Omnicom (NYSE:OMC) rose from $20.09 to $89.66 between March 2009 and December 2016. The stock took full advantage of the post-crisis bull market and gained 346% in less than eight years. Alas, as the S&P 500 kept climbing for three more years, the same cannot be said about OMC stock.
In March 2018, Omnicom was hovering around $73 a share, still below its late-2016 all-time high. And while many investors saw this as an opportunity to buy the dip, Elliott Wave analysis convinced us something else was happening.
Omnicom’s weekly chart revealed that the 2009-2016 uptrend unfolded as a five-wave impulse. The pattern was labeled 1-2-3-4-5, where the sub-waves of waves 3 and (iii) of 3 were also visible. A three-wave correction follows every impulse, the Elliott Wave theory states.
Omnicom Completes Elliott Wave Cycle
Therefore, unlike the previous drops, the dip from $89.66 to $65.32 was probably not going to lead to a new high. It fit into the position of wave A within a larger A-B-C zigzag retracement. This count suggested Omnicom could lose another 30% of its market cap in wave C towards ~$50 a share. More than two years later now, the stock closed at $49.06 on May 13th, 2018.
As it turned out, the bears needed a little more time to regroup. Wave B evolved into a bigger a-b-c zigzag, where wave ‘c’ was an ending diagonal. It ended at $85.05 in July 2019. That was the real start of the wave C selloff we have been waiting for.
Eight months and one coronavirus pandemic later, Omnicom fell to as low as $46.37 in March 2020. The stock lost 48% since December 2016 and 36.9% since that March 2018 analysis. The hedge funds which had a $2.2 billion short position in the company must be very pleased with that result. Now what?
According to the theory, once the correction is over, the larger trend resumes in the direction of the impulsive sequence. The chart above depicts a complete 5-3 wave cycle. This means that even if wave C makes a new low, a bullish reversal can be expected soon. In addition, the price already bumped into the 61.8% Fibonacci level, where corrections often terminate. If this analysis is correct, Omnicom bulls are finally ready to return.