Watch Visa for Weakness

by Serge Berger | August 2, 2013 2:30 am

Visa (V[1]), 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[2]) and American Express (AXP[3]) 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.

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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.

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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[4]. Sign up for his free weekly newsletter here[5].

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