close icon

FICO Stock, A Barometer for the Economy, Looks Weak

In most countries, financial institutions use some kind of credit scores to better evaluate a borrower’s creditworthiness. In the United States, the FICO score, maintained by the Fair Isaac Corporation, is used in over 90% of loan originations decisions.

So in essence, Fair Isaac holds a 90% market share in a service most lenders cannot do without. Couple that with the fact that this is a low-capex business and you get a recipe for a very promising investment. And indeed, FICO stock is up a staggering 4200% from its Financial Crisis bottom in 2009.

On the other hand, the share price is down 30% since July this year. The only question is, is this a buying opportunity or the start of a bigger selloff? Let’s try to find out with the help of Elliott Wave analysis.

FICO stock looks poised for more weakness

The weekly chart above is a graphic representation of most of FICO ‘s history as a public company. It reveals both the 2008 crisis drop and the sharp 2020 selloff, as well as the spectacular rises that followed each of them.

From an Elliott Wave standpoint, the chart depicts a textbook five-wave impulse. The pattern is labeled I-II-III-IV-V, where the five sub-waves of wave III are also visible. The surge from $178 a share in March 2020 should then be wave V.

Elliott Wave Correction in Progress

According to the theory, a three-wave correction follows every impulse. And indeed, FICO stock is down 30% from its July all-time high of $554. Unfortunately for the bulls, the current pullback is still too shallow in relation to the impulse it corrects.

Besides, it looks like a single wave A, not a complete three-wave structure. Therefore, it makes sense to expect more weakness towards ~$250 in the months ahead. Now, let’s take a closer look at the daily chart below and see if it confirms the negative outlook.

FICO stock draws an impulsive decline

A quick look at FICO ‘s fifth wave from up close is enough to label it as an ending diagonal. The pattern is labeled 1-though-5, where unlike in a regular impulse, waves 1, 3 and 5 have corrective a-b-c structures. The following bearish reversal to $370 so far reinforces the bearish outlook.

It can be seen as an impulse, marked 1-2-3-4-5 in wave A. If this count is correct, we can expect a short-lived recovery in wave B, followed by another wave of selling in C. Given the company’s market position, financial stability and steady growth rates, the anticipated drop would provide investors with a great buying opportunity. For now, however, we think it is wise to remain in a wait-and-see mode.

FICO Stock as a Leading Economic Indicator

Regardless of FICO ‘s business quality, the company remains cyclical. That is because it mostly serves financial institutions such as banks and credit card companies. They, in turn, tend to be a lot more careful with whom they lend to in a recession. This means the amount of loans issued declines, which translates into less business for FICO.

In a sense, FICO is among the first companies to know if the economy is slowing down. For example, during the Financial Crisis the general stock market did not start falling before October, 2007. FICO stock, on the other hand, topped as early as November, 2005, almost two years earlier.

Now, history may not repeat itself, but it often rhymes. With FICO down 30% from its record already, one might wonder if another crisis lurks around the corner…

Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

SAP Stock to Use Dot-Com Bubble High as Support

SAP is the biggest non-US software company in the world by revenue and the largest one in Germany by market cap. At its current stock price of roughly €115 a share, its valuation is higher than $150 billion. That is not much higher than its Dot-Com bubble peak at €77.50 a share in 2000, highlighting…

Read More »

Klépierre to Follow in Simon Property’s Footsteps?

Klépierre S.A. is Europe’s top mall operator with over 100 shopping centers in more than ten countries. Malls, the saying goes, were getting killed by the switch to e-commerce and the pandemic only exacerbated that trend. However, not all malls were created equal. Klépierre does not operate just any mall. It owns the most luxurious…

Read More »

Freeport Bearish Pattern Sets Targets Below $30

Despite the March 2020 Covid selloff, Freeport-McMoRan is trading significantly higher since we shared our last bullish update on it in December, 2019. As the price of copper soared, FCX soared with it to as high as $46.10 in May, 2021. However, no trend lasts forever and Freeport ‘s rally was no exception. The stock…

Read More »

L3Harris Elliott Wave Pattern Points to a 40% Drop

L3Harris Technologies, formed by the 2019 merger between L3 Technologies and Harris Corporation, is the sixth largest US defense contractor. The company is decently profitable and financially sound, which helps explain why the stock is hovering close to its all-time high. And indeed, L3Harris has been very generous to investors throughout the years. The stock…

Read More »

Bluescope Steel Stock Can Tumble to Single Digits

Bluescope Steel Limited is an Australian steep products manufacturer founded in 2002 and headquartered in Melbourne. The recent commodities upcycle helped the stock climb above A$26 a share for a while. Currently at A$21.24, the company’s market cap is still north of A$10 billion. But for how long? Bluescope ‘s recent surge didn’t come out…

Read More »

Taking a Closer Look at Lockheed ‘s Correction

We last wrote about Lockheed Martin on January 5th when the stock was hovering around $345 a share. We thought the top at $443 in February 2020 marked the end of an impulse pattern which had been in progress since 1999. Hence, it made sense to expect more weakness ahead for the stock as its…

Read More »

Dell Stock Trading in Fifth and Final Wave

Investors who were brave or fortunate enough to buy Dell Technologies during the coronavirus panic of March 2020 must be very pleased with the results. The stock is up 338% from that bottom at $25.51 and closed at $111.63 yesterday. For a profitable, growing and financially sound company like Dell, that surge is not a…

Read More »

More analyses