Visa (V), the operator of a retail electronic payments network (credit cards and more), has risen sharply in recent years, and found a particularly steady bid since the summer of 2011.
The prospects of increased consumer spending, credit growth and an all-around improving economy blasted the stock higher to the tune of roughly 165% from June 2011 up to the recent all-time highs in late July 2013. As such, the stock continually showed leadership in a tape that, though resilient, did throw a few scares at investors over the past couple of years.
On July 31, however, the stock dropped 7.5% on the back of a new court ruling that essentially could mean that Visa will have to charge its retailers smaller debit-card fees. The reaction to the stock prices of both MasterCard (MA) and American Express (AXP) was much less muted, though MA also reported strong earnings the same day.
In terms of price action for Visa, Wednesday’s drop in the stock — albeit sharp — only took it down to the 100-day simple moving average, which acted as solid support through the entire stampede since June 2011. Through that lens, the stock’s drop thus far has simply been a mean-reversion move.
On the other hand, the one-day selloff also snapped the stock’s two-year uptrend with ease, and that is something worth monitoring.
While the stock did rebound Thursday, I want to keep a close eye on Visa as any follow-through weakness on the back of Wednesday’s slide might qualify the stock as a market leader fumbling the ball.
In other words, as the broader market continues its ascent and chasing the market higher becomes increasingly challenging, Visa is a stock to keep on the radar for potential leading indicator characteristics on the downside.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.