When we wrote about Fair Isaac (NYSE:FICO) a year ago, the stock had just fallen from a record of $554 to as low as ~$390, down 30% in four months. A quick look at the structure of that decline revealed that it had taken the shape of a five-wave impulse. According to the Elliott Wave theory, a correction in the other direction follows every impulse. So it made sense to expect a notable recovery to begin soon.
And begin it did. Over the following three months to February, 2022, the stock surged to $531 per share. It felt as if a new all-time high was just a matter of time. Alas, it wasn’t meant to be. The bulls suddenly lost momentum and even allowed a drop to $340 at one point in May. As of this writing, a single share can be bought for just over $435. But these numbers mean nothing unless one sees the path the price has travelled getting there. The updated chart below gives us a better perspective.
The initial impulse mentioned above is marked 1-2-3-4-5 in wave A. The rest of the chart depicts an eerily familiar pattern, namely a triangle in wave B. Triangles are sideways-moving structures consisting of five sub-waves, labeled a-b-c-d-e. Just like after any other correction, once the triangle is over, the trend resumes in the direction of the preceding impulse.
It’s Not Just Elliott Wave Troubles for FICO Stock
Here, this means we can expect more weakness in wave C. Since wave ‘e’ is not supposed to exceed the top of wave ‘c’ of B, the bears remain on the wheel only as long as FICO stock trades below $508. On the other hand, wave C is supposed to breach the low of wave A, putting downside targets below $340 within reach.
The recent rapid increase in interest rates is virtually guaranteed to worsen credit scores across the board. This, in turn, is likely to result in less borrowing both by companies and individuals. This means less business for Fair Isaac Corp. With that in mind, we wouldn’t be surprised to see FICO stock dropping below $300 a share and towards $250 in wave C. From its current level, this translates into a roughly 45% plunge. Until then, we’ll stay away from this otherwise high-quality company’s stock.