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Visa Stock Looks Too Risky After Remarkable Post-Crisis Run

Earnings are still a couple weeks out, but the decision to take profits is yours to make today

It’s “everywhere you want it to be.” And for Visa (NYSE:V) shareholders, it’s time to cash in some of those rewards or take advantage of V stock today.

Source: Tada Images /

Visa shareholders have had a nice run. Sure, the financial services giant isn’t in the same league as fellow Dow Jones Industrial Average constituent Apple (NASDAQ:AAPL) whose shares were up about 89% in 2019 and more than 3,000% over the last decade. But it’s no slouch either.

V stock’s price chart was up roughly double the Dow Jones last year with its rally of 43%. Nice, right? Moreover, since the financial crisis low shares have gained in excess of 1,500%. That’s enough to put Visa in good standing among the Dow’s more endearing stock performers such as Disney (NYSE:DIS) and Home Depot (NYSE:HD).

It begs the question, is it time to take a step back and reassess risk ahead of the company’s fourth-quarter earnings report? This strategist sees it that way.

Visa’s stock returns could justify some profit-taking. There’s also 12 straight consecutive quarters of earnings beats to consider. Investors could be pressing their luck with No. 13. What’s more, with a whisper number of $1.51 versus Street earnings estimates of $1.46, the risk of investor disappointment is raised.

Intact bullish trends are in line with Visa’s “everywhere you want to be” slogan. Shares are hitting a sort of critical shopping limit on the price chart. That means it’s time for investors to cash in on the V stock rewards program.

V Stock Monthly Chart

Source: Chart by TradingView

The last difficult technical period for Visa stock investors was 2018’s market correction. Over a four-month period shares lost 19.6%. Prior to the short-lived panic you’d have to go back to 2015’s even quicker correction of 21% to find a similar loss. It’s simply not enough.

The problem is the pair of setbacks barely constitute a bear scare. The benchmark for a bear market is a loss of 20% or greater. More troubling, growth plays like V stock are known to correct by as much as 30%. Even in healthy market environments, declines of this magnitude are the norm, not the exception. Having said that, I estimate that Visa is at risk of a larger price decline.

There’s another red flag on the V stock chart. Investors’ collective buying power has helped complete a Fibonacci-based two-step or mirror move. This occurs when “leg CD” matches the gain of “leg AB” following a corrective pause. This pattern completion has been three years in the making, starting when shares began trending much more aggressively in 2017. Now it’s time to be thrifty.

How to Trade Visa Stock

For investors in position to consider taking profits, I’d offer buying an intermediate-dated long put against a long V stock holding. The resulting married put or synthetic long call limits risk and keeps the upside profit potential open-ended.

Alternatively, surrounding Visa shares with a reverse fence to establish a collar makes sense. This spread sells an upside call contract to reduce the cost of the protective put. If the position is left untouched, the collar limits the investor’s profit potential if a rally through the strike occurs. Still, a collar looks like the smarter money play right now.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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