Shares of payment solutions company MasterCard Inc (MA) have seen big gains off the mid-October gains, aided by a post-earnings jump that took them to fresh all-time highs. After a couple of consolidation weeks, MA stock now looks ripe to make a next move higher — and given the clearly defined risk/reward scenario, this is something you should consider sinking your teeth into.
Before the start of trading Oct. 30, MasterCard reported third-quarter earnings of 87 cents per share, beating analyst estimates by 9 cents per share. Revenues of $2.50 billion also cleared the Street’s bar of $2.45 billion. On a year-over-year basis, earnings were up 19% on sales that grew 13%.
MasterCard continues to beat the industry average as far as revenue growth is concerned, which also is nicely reflected in the longer-term chart of MA stock.
MA Stock Charts
Looking at the multiyear weekly chart of MA stock, we see that after a big rally from 2011 into late 2013, shares slipped into a consolidation phase in 2014 — a phase that’s actually still taking place. The selloff into mid-October bumped the stock right into its multiyear uptrend line and has since pushed the stock back to the very upper end of the now 12-month-old sideways range.
With the Relative Strength Index (RSI) at the bottom of the chart also pointing back up, the stock (from a multiweek perspective) looks good to push higher still.
To be sure, MA stock isn’t the only payment solutions provider that has a constructive-looking chart. In fact, competitor Visa Inc (V) has been leading the rally and broke higher over the past few days.
Zooming in on the daily chart of MA stock, note that the post-earnings rally on Oct. 30 cleanly broke MasterCard past its diagonal resistance line that had been in place since January (black diagonal). This move was supported by a marginal higher low in mid-October versus the April lows. In November, the stock moved a little higher and began to consolidate in a tighter range around the previous all-time highs from January.
The posture of MA stock thus is one where the the post-earnings rally has consolidated and near-term overbought readings have been worked off, so a continuation move higher looks likely. The beauty of this setup is the clearly defined risk. The mid-November lows near $83 are the reference level of support, while a break past the $86 mark, which marginally took place on Tuesday, is the breakout trigger to the upside.
Active traders and investors thus now have a cleanly defined trade setting up that could push MA stock toward the $92 mark in coming weeks. The risk to this trade is that the very overbought readings in the broader market will finally begin to weigh on the major indices, in which case it also would be likely that MA stock would come under some pressure.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
