Visa Inc (V) — When I last covered V stock on March 29, I pointed out a near-term bullish setup. Shares hit my price target last week, and I now find myself back in a more cautious posture.
Shares fell 1.9% on Friday after the company announced its latest quarterly results. Earnings came in above expectations, but Visa cut its full-year revenue outlook.
While V stock suffered no great technical damage as a result of the post-earnings pullback, the recent rally looks too steep to be maintained, and shares may present traders with a good short-side opportunity in the near future.
Making the rounds with the analyst community following Visa’s earnings report, the commentary was largely bullish. Some analysts cited Visa’s strong portfolio of clients, others cited opportunities based on European expansion, and some analysts have simply never met a stock he or she didn’t like.
Looking at the weekly chart, we see the uptrend in V stock since 2011 has mostly taken place within an ascending cone shape, which is to say that marginal lower lows were followed by marginal higher highs.
The rally off the February lows has once again brought V stock to the very upper end of this cone-shaped trading range, pushing most momentum oscillators into overbought territory.
Also note that the recent rally roughly matches the distance of the two previous sharp rallies. So, considering the distance travelled in the pattern and the readings on momentum indicators, V stock looks overbought in the near to medium term.
Zooming in on the daily chart below, we see shares breaking above the 8-day (blue) and 21-day (yellow) simple moving averages in mid-March, and then trailing the 8-day higher.
On Friday, V stock finally broke below this line but found support at the 21-day moving average. As long as shares hold above this line, a near-term bear case is difficult to make from a momentum perspective. However, traders could look to get short or buy cheap put spreads if V stock breaks below the $78 area. The first target for a mean-reversion move lower would around $74-$75.
As of this writing, Serge did not hold a position in any of the aforementioned securities.
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