While publicly traded credit card stocks have shown strength over the past several months, many investors believed that we were due for some type of pullback.
Just recently, signs of this bearish sentiment began to surface as concerns over credit quality and reserve levels within the industry materialized.
Related stocks began to move sharply lower as a result …
Brian Doubles, chief financial officer of Synchrony Financial (SYF), stated there “appears to be a general softening in the consumer’s ability to pay.”
However, it is yet to be decided whether this statement is perceived as an opportunity to take profits off the table or if we’re looking at the start of a much deeper concern with regard to where the trends are headed going forward.
To find out more, we used Profit Scanner’s Technical Event Lookup tool to research a few key players in the credit card industry to see what’s been going on in the charts and determine if any profit opportunities exist in credit card stocks.
Credit Card Stocks on Thin Ice: American Express Company (AXP)
American Express Company (AXP) is a services company whose principal offerings are charge and credit payment card products and travel-related services offered to consumers and businesses around the world.
In the chart above, you’ll notice that shares of AXP have failed to recoup all ground lost in the one miserable month of January. The bullish argument that despite the loss of momentum, gains were still being made, no longer holds up.
On June 13, Profit Scanner alerted us of a very important intermediate-term technical event in AXP, in which price fell below its 50-day moving average. Moving averages are used to smooth out the volatility or “noise” in the price series to make it easier to discover the underlying trend.
By plotting the average price over the last several bars, the line is less “jerky” than plotting the actual prices. A bullish event is generated when the price crosses above the moving average and, in this state, the price is likely in an established uptrend. The opposite is true — as is currently the case with AXP — when the price crosses below the moving average, triggering a bearish event.
Assuming the stock resumes its longer-term downtrend, we could possibly see the February low of $50.27 tested in the months ahead, reflecting a 17.3% move lower from current price levels.
Credit Card Stocks on Thin Ice: Visa Inc (V)
Visa Inc (V) is an American multinational financial services corporation that facilitates electronic funds transfers throughout the world, most commonly through Visa-branded credit cards and debit cards.
Visa does not issue cards, extend credit or set rates and fees for consumers. Instead, the company provides financial institutions with Visa-branded payment products that it then uses to offer credit, debit, prepaid and cash-access programs to its customers.
Although Visa stock has been able to maintain a slight uptrend over the past year, it too suffers from the same technical fate as AXP, recently cutting through the 50-day moving average in bearish fashion.
While new highs may still be within reach before year’s end, shares will inevitably struggle should investors turn sour on the industry as a whole.
With that said, Profit Scanner tells us that V would need to break below $70 per share to negate the longer-term rising trendline of support. As shares currently trade at $78.40, there is a bit of a buffer there. But investors should keep their eye on the $70 level and realize that it’s a key battleground area for the bulls and bears.
Credit Card Stocks on Thin Ice: Discover Financial Services (DFS)
Discover Financial Services (DFS) is a financial services company which issues the Discover Card and operates the Discover and Pulse networks. Discover Card is the third-largest credit card brand in the United States when measured by cards in force, with nearly 50 million cardholders.
In the intermediate-term chart view of DFS above, we see a steep decline between December and January, followed by an equally impressive move back up that erased all of those losses.
But the bullish gap that occurred back in mid-April was destined to fill. While the downside move in May did fill most of the gap, investors were not convinced, leading to a sharp decline in recent trading activity.
On June 14, Profit Scanner confirmed the bearish “Double Top” event, in which shares failed to break through upper price resistance near $58 per share on two separate occasions and ultimately broke downward in a sign of reversal.
With the pattern confirmed, short-term support for DFS is located at $48.68 below. Based on the current price of the stock at $52.09, we’re looking at a potential 6.5% downward move over the next two to six weeks.
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