LPL Financial (NASDAQ:LPLA) Holdings is the largest independent broker-dealer in the US and a top custodian with roughly $1.2T in assets. The company went public in late 2010, but the stock only really took off during the COVID-19 pandemic. The share price is up nine-fold from its bottom at $32 in March 2020, to nearly $288 last month.
The context we should put those impressive gains, however, is what we think matters most. Record fiscal and monetary stimulus pushed financial asset values up like never before. Inflation was the unwanted side-effect, which forced the Fed to remove the monetary stimulus from the equation and replace it with a significantly restrictive policy.
In other words, the tailwind, which had been pushing financial asset prices higher, is no longer there. It has in fact turned into a headwind, but judging by the new all-time highs, the market has yet to recognize this. Once it does, companies like LPL Financial, whose fees and commissions are formed as a percentage of assets under management and custody, are likely to suffer. The Elliott Wave chart below suggests that this can happen sooner rather than later.
Starting from the bottom at $15.38 in February 2016, a five-wave impulse to the upside has emerged. We’ve marked it I-II-III-IV-V, where wave III is the longest as usual and wave IV has retraced precisely down to the 38.2% Fibonacci support level. The COVID-19 panic of 2020 stands for wave II. If this count is correct, LPL Financial stock is currently in the fifth and final wave of this pattern.
According to the theory, once wave V is over, a three-wave correction can be expected to drag the price down to the support of wave IV. Assuming a bearish reversal near $320 a share, that’ll be a 40%-50% drop back to $180-$160. We’d rather watch it from a safe distance.