While Wall Street spent the past couple of weeks consolidating its V-shaped reversal from those nasty February lows, a few notable sectors (and thus individual stocks) began acting more constructively.
Visa Inc (NYSE:V) falls into this category.
While I ultimately continue to see the risk of a bigger mean-reversion move lower in Visa stock, the nearer-term path of least resistance is to the upside.
When Visa last reported earnings in late January, the results sparked V stock to a 7.5% rally the next day. However, V began dropping severely along with the broader market a few days later, taking out the pre-earnings low. Visa stock did rebound with the market, but so far, it remains stuck at technical resistance from January’s post-earnings rally.
Given the big macro economic and corporate growth slowdown, most stocks are tracking fairly close together — particularly ones in the financial space and thus those somewhat sensitive to changes in interest rates.
So, when we look at shares of Visa stock right now, we must keep in mind that any further dovish statements by the Federal Reserve could quickly swing the financial sector back lower, pulling everything with it … including V.
Visa Stock Charts
On the multiyear weekly chart, we see that Visa’s entire ascent since 2011 has come in a big cone-shaped pattern. Ultimately such patterns lead to a better mean-reversion move lower and out of the cone.
Note also that upside momentum in the stock has been waning ever since late 2014, where the stock in essence began slipping into a bigger picture consolidation phase — the one V is stuck in at present.
From here, Visa stock has a long way to go before it returns to the upper end of the cone. And while V looks heavy through a multimonth lens, in the near-term, some upside is entirely possible.
In fact, traders should look to pounce on it.
On the daily chart, we see that V’s price action since the beginning of the year resembles an inverse head-and-shoulders pattern, with the blue triangles representing the left shoulder, head, and right shoulder. Visa stock also is now trading above both its 8- and 21-day simple moving averages and pushing against the black diagonal (the neckline of the head-and-shoulders formation).
A break and hold above the $74.50 area could get Visa to work toward the top of its still-unfilled down-gap from Jan. 4 (the high $70s, marked by the red dotted line).
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