Shares of credit card and financial services company Capital One Financial Corp. (NYSE:COF), while flat year-to-date, saw a nice post-earnings pop in mid-October. And I see that pop continuing into year’s end or early 2016 toward a nicely defined target.
Active investors and traders should thus look to buy COF stock on any dips or leg into an initial position at current levels.
Here’s a little bit more detail:
In its latest quarter, Capital One saw profit jump to $1.11 billion, up from $1.08 billion in the same quarter a year ago. Revenue came in at $5.9 billion, up about 4.5% on the year.
The company is still in the process of closing two deals: The acquisition of Beech Street Capital and General Electric Company’s (NYSE:GE) healthcare financing unit. Upon closure of those two deals (in the fourth quarter) it is conceivable that COF stock will get a further lift — something that’s also at least partly backed by the charts.
COF Stock Charts
The multiyear trend line and its channel were broken in August as Capital One — along with the broader market — was subjected to meaningful selling pressure. As it often goes, while one trendline broke, another technical area of support held. In the case of COF, horizontal support from late summer 2013 ended up holding, and the rally in recent weeks has pushed the stock back into its multiyear channel.
Nevertheless, from this perspective, Capital One is not yet out of the woods; instead, it’s in more neutral territory. So we need to look at the closer-up charts for evidence of a more potential bullish posture.
On the daily chart, note that after bottoming in late August, COF stock entered a consolidation phase that — just as for the S&P 500 — led to a higher low in late September/early October. The real kickoff for the stock was its post-earnings reaction, where the stock rallied nearly 8% on good volume, pushing it right into a confluence area of resistance made up of its 100- and 200-day moving averages (blue and red lines, respectively).
Although the post-earnings rally thus far has been a one-day wonder, the breakaway gap that it formed that day, coupled with a constructive sideways consolidation move since then, allows for a possible next leg higher soon.
COF stock also has a large unfilled down-gap from July to work toward. While that is not necessarily my price target, unfilled caps have a tendency to act as a magnet, and the more COF stock manages to hold its October rally, the better the odds of a next move higher into the mid- to high $80s.
Active investors could look to buy COF stock upon a break and hold above $81.50.
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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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