The last three weeks have been tough on ServiceMaster shareholders. SERV stock was hovering around $56 a share as October went into its final third. But when the company announced its preliminary Q3 results on October 22nd, all hell broke loose.
Apparently, Wall Street didn’t like what it saw, which resulted in a swift and sharp plunge to as low as $34.77 by November 8th. Even investors who got out as soon as the bell rang on October 22nd still lost money as the market opened with a ~10% gap to the downside.
In the digital age we live in, the best time to react is usually before the news is out, not after. That is exactly what we tried to help our readers do when we published “SERV Stock Sets the Stage for a 40% Tumble” on May 31st. Of course, that material couldn’t possibly be based on information about the company’s Q3 results as it was posted nearly five months earlier. Instead, we used the chart below and the Elliott Wave principle to prepare.
SERV stock was trading close to $54 a share on the last day of May, but Elliott Wave analysts knew investors cannot afford to be complacent. The daily chart above revealed that ServiceMaster’s entire uptrend since its June 2014 IPO had formed a complete impulse.
SERV Stock Gave Investors Five Months’ Notice Before Crashing
The Elliott Wave theory states that a correction in the opposite direction follows every impulse pattern. According to this count, the support area of wave (4) near $35 was a natural bearish target. So instead of joining the bulls near all-time highs, we thought SERV stock can “tumble by roughly 40% from current levels.” Five months later that is exactly what happened.
The bulls managed to climb to $58.78 in wave (5) in August, but no further. The next three months brought the kind of havoc every investor hopes to never experience. From top to bottom, SERV stock lost 40.8% so far and it looks like the bears aren’t done yet.
The problem is that corrections consist of three waves while the plunge from $58.78 seems to be just one. It follows that ServiceMaster is still in pullback mode. Wave (b) up can provide some temporary relief soon, but then wave (c) should drag the share price even lower. If this count is correct, the sub-$30 area can be visited before things really start to improve.