Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here.
Equifax (EFX) — This credit services company is one trendy stock, by which I am referring to its stellar uptrend that dates back to October 2011. After a good run off its 2009 lows, EFX traded back and forth until it gained enough momentum in February 2012 to blast past a multi-year area of resistance around the $40 mark. From then on, there was no stopping the stock as trend followers, growth investors and just about everyone else jumped on board until it found a top in May.
On the longer-term chart, note that the stock never broke below its uptrend line (black), which has been in place since the beginning of this rally’s latest leg in October 2011. Not so coincidentally, given the correlation among stocks, October 2011 also happened to be an important low for the broader U.S. stock market.
From October 2011 to May 2013, EFX rose more than 100%, yet unlike other stocks with steep ascents, it continually retraced back to the aforementioned uptrend line, as well as its 100-day simple moving average (blue line).
In other words, despite several occurrences where the stock took its slope vertical over the past two years, it appears to have an equally healthy appetite for mean-reversion moves. From a trader’s point of view, this makes me more comfortable playing the stock from the long side, knowing that a large gap-down risk is somewhat lessened.
Closer up on the daily chart, on June 24, EFX bounced off its 100-day simple moving average. This set the stage for a steep rally, which led the stock to break past lateral resistance around $61.50 on July 25.
EFX then saw strong follow-through buying, which now looks to be able to push the stock toward the mid- to high $60s in the ensuing months.