M&As: Beware of This Major Sign of a Stock Market Top
Here’s what often precedes “prolonged and devastating bear markets”
by Bob Stokes
Updated: January 25, 2022
Inside the three publications that comprise our flagship Financial Forecast Service, Elliott Wave International recently documented the many expressions of "financial optimism." Things like crypto mania. Or meme stocks. Or just buying any stocks, all stocks, no matter if the companies that issued them are making money, losing it, or have yet to turn a profit.
And it's more than just the individual investors who are caught up in it. Among the other behaviors this widespread financial optimism leads to are corporate mergers and acquisitions.
A corporate merger here or there may have little significance. However, when the biggest one in history occurs as part of a trend of a rising number of M&As -- beware.
Consider a historical case-in-point: This is from the February 2000 Elliott Wave Financial Forecast:
The euphoria surrounding AOL's purchase of Time Warner may mark the top. As The Wall Street Journal put it, "The deal was heavy with superlatives and symbolism. It would be the biggest merger in history yahoo!"
That purchase had occurred about a month earlier [Jan. 10, 2000], which was within days of the Dow's high.
As Robert Prechter's At the Crest of the Tidal Wave noted:
Companies express optimism by taking over other companies. Such activity is indicative not of minor bull market tops, but of ones that precede prolonged and devastating bear markets.
That optimism was again evidenced for much of 2007. In January of that year, our Elliott Wave Financial Forecast again issued a cautionary note:
The other incredible expanding story is the "staggering" size and volume of corporate acquisitions. Newsweek and countless other articles find the rash of "bigger and bigger" deals "Phenomenally Positive" for the stock market.
Instead, later in 2007, the stock market hit another historic top.
This brief review of 2000 and 2007 is relevant in these early days of 2022. Here's a Jan. 18 headline (CNBC):
Microsoft sets record for biggest tech deal ever, topping Dell-EMC merger in 2016
The headline is referencing Microsoft's purchase of Activision Blizzard.
Ironically, this is unfolding as technology stocks are being punished.
Could this purchase by Microsoft be a sign of another stock market top?
Of course, only time will tell.
One thing's for sure: the Elliott wave model is sending a major message which every investor should know.
You'll find that message in the just-published February Elliott Wave Theorist, which is filled with Elliott wave charts -- one of which goes all the back to the year 1! (Yes, "year 1" -- as in, 1 AD, 2021 years ago. You might say, but there was no stock market back then, so how can you label charts going back that far? That's a topic for a bigger discussion, suffice it to say that Prechter is labeling the waves not just of the stock market but of social mood, and he's doing it in reverse; there are ways to do that throughout history by looking at major recorded events, for example.)
Of course, you'll also see charts which analyze shorter timeframes in the new Theorist, charts that show you where stocks are today -- and what's next. The Theorist is part of our flagship investor package, the Financial Forecast Service, which you can review by following the link below.
The February Elliott Wave Theorist is Now Online!
Talk about thorough and thought-provoking!
This is from the introduction of the new Elliott Wave Theorist:
"Figures 1 through 18 offer perspectives from a graphic covering 2000 years down to the 10-minute chart.
"Figure 1 shows developing Millennium waves dating back to the year 1."
Right -- sweeping Elliott wave analysis.
This epic publication should be on every investor's computer screen -- pronto.
The Elliott Wave Theorist is part of our flagship investor package, which you can access by following the link below.
Financial Forecast Service
All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.
Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.
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