The stock market remains jittery and highly correlated — a summer theme that I have been advocating throughout 2015’s first half.
But I’ve been equally vocal about the need for traders and active investors to closely watch the financial sector, as it has in good part helped to hold up the broader U.S. indices such as the S&P 500. Well, with financials looking heavier and sitting at defined lines of support, a break below said support could offer better downside that traders could play.
One such stock is that of electronic payment network company Visa Inc (NYSE:V), which looks overdue for a better mean-reversion trade lower.
A note about risk management for Visa stock: Note that V is scheduled to report earnings two weeks from today (July 23). While Visa shares certainly could fall after the report, the binary risk of holding trading positions through earnings reports often isn’t worth it. So the trade I’m looking on is focused on the next week or two, no further.
Visa Stock Charts
Moving right to the charts, note in the below multiyear weekly chart that V stock has seen a sharp rise in recent years, as well as another jolt higher in late October/early November of last year.
In many ways, Visa’s year-to-date movement reflects what we’ve witnessed in the S&P 500 — that is, V shares have moved marginally higher overall, but in a very choppy fashion.
For those of us monitoring momentum along with price dynamics, it also stands out that while Visa’s stock price made higher highs into May, momentum (as measured by the Relative Strength Index at the bottom of the chart) has flagged lower highs. While this alone is no reason to sell or short a stock, it does mean that upside in Visa stock likely is capped in the near to medium term.
On the daily chart below, we then see that after the last few weeks of choppy price action, Visa stock has arrived at the lower end of its YTD uptrend. Considering the spike in broader market volatility, coupled with more notable weakness in the financial sector and the aforementioned lack of upside momentum in the stock, the path of least resistance for the coming couple of weeks increasingly looks to be to the downside.
Active investors and traders could use Wednesday’s lows near $66.50 as a reference pivot, as a break and hold below there should send Visa stock mean-reverting lower into the low $60s.
As usual, any sharp bullish reversal upon the trade being triggered would quickly call it back off.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
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