Capital One Setting Up for a Near-Term Breakout

by Serge Berger | April 9, 2013 1:13 am

Serge Berger is the head trader and investment strategist for The Steady Trader[1]. Sign up for his free weekly newsletter here[2].

Capital One Financial Corp. (NYSE:COF[3]) — While this diversified financial services company is down about 7% year to date, two of its close competitors, Visa (NYSE:V[4]) and Mastercard (NYSE:MA[5]), have posted solid gains and recently staged additional near-term breakouts.

While the underperformance of COF may or may not be justifiable from a fundamental standpoint, the fact is that the stock is currently forming a strong pattern that could cause traders to chase it higher for a catch-up play.

After coming nicely off an early March bottom, COF spent the past month shuffling sideways, frustrating those looking for sympathy from traders enjoying price gains in its competitors. But the price action in the past two days has been noticeably more constructive, so much so that a breakout past recent resistance now seems feasible.

The resistance point in question is near $55.20, on a daily closing basis, which serves as the top end of the recent sideways trading range. A solid break above there should allow the stock to move up to the confluence zone of the 100-day and 200-day simple moving averages, and possibly up to the February highs near $58. Above there, the stock would start working into a down gap from early January (read: air).

While a meaningful downdraft in the broader indices would likely also pressure COF, in the meantime, the technical setup remains ripe for a long-side trade.

COF Chart
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