Global payment solutions company MasterCard (MA) continues its multi-year super rally. A little over two and a half years ago the stock was trading in the low $200s but has since climbed to well above the $600 mark for a total of a close to 200% increase during this time frame. The company’s peers such as American Express (AXP) and Visa (V) too have rallied sharply in this time and have profited handsomely as entrepreneurs essentially used credit cards in lieu of difficult-to-get bank loans.
As regular readers of my columns know, I pay close attention to the steepness of slopes on charts. In the case of MasterCard, the below chart looking back to 2012 is not only steep, but on August 1, post earnings took a vertical leap out of the multi-year trading channel (red parallels). Of note is that the stock spent the the past two and a half months in the upper range of the trading channel, until it finally found a catalyst to break higher. From my perspective this stock is setting up for a classic mean-reversion trade lower and into the confines of the red parallels.
Close up on the daily chart of MA, note that the breakout past the $600 mark around the earnings announcement on July 31 came after a tight consolidation phase. After a week or so of consolidation, however, last Friday the stock broke below immediate term support, which could be the beginning of a better mean-reversion trade into the trading channel discussed above unless buyers step back in quickly. A target price area that I am currently focusing on is around the $580 – $600 area.