Three years ago, Verizon (NYSE:VZ) stock was hovering around $60 a share, up almost 200% from its 2008 bottom. Due to it rock solid position as one of the two major telecoms in the US, the company was printing money by the billions. To make things even better, Verizon was in the pole position for the 5G network rollout. Given all that business strength, it is no wonder that investors and analysts were predominantly bullish on the stock.
On the other hand, the market is a forward-looking creature. This means that any piece of widely-known news, be it good or bad, is usually already discounted in the price of the asset. In other words, buying VZ because of its 5G prospects meant doing the same thing everyone else was doing. Alas, it is a well-known fact that you cannot beat the market by doing what everybody else does. In fact, any failure to meet such widely-accepted rosy expectations is virtually guaranteed to lead to disastrous investment results.
But the primary reason why weren’t particularly excited about Verizon stock was different. Instead, it had everything to do with the chart below.
Verizon ‘s weekly chart revealed that the uptrend from $21.56 in October, 2008, was a complete five-wave impulse. The pattern was labeled (1)-(2)-(3)-(4)-(5), where two lower degrees of trend were also visible within wave (3). More importantly, wave (5) was shaped as an ending diagonal.
Elliott Wave Analysis Put Investors Ahead of Verizon ‘s 5G Failure
A correction follows every impulse, states the Elliott Wave principle. Corrections usually erase most or all of the fifth wave of the corresponding impulse. With that in mind, we wrote that “the support area near $43 a share looks like a natural target for the bears once wave 5 of (5) is over.” Assuming a bearish reversal near the $65 mark, that would be a 30-35% plunge.
Three years later now, 5G really is everywhere. Neither Verizon ‘s nor AT&T's (NYSE:T) investors, however, have benefited much from it. Elliott Wave analysis somehow saw that coming and warned us on time.
Verizon stock couldn’t even make it to the $65 mark. The best the bulls could do was $62.22 in December, 2019. On September 8, 2022, VZ dipped below $41 a share, down 34.6% in less than three years. Needless to say, we had no idea that T-Mobile (NASDAQ:TMUS) was going to win the 5G race and neither did we know that a global pandemic was lurking ahead.
All we knew was that there was a complete impulse pattern on Verizon ‘s weekly chart and that impulses are followed by corrections. Having said that, waves (a) and (b) are already in place. The sharp drop we’re currently witnessing must be part of wave (c). It makes sense for the bears to reach the 61.8% Fibonacci support area. This translates into more weakness towards $38-$34 before the retracement is over and a recovery can begin.