Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
Capital One Financial Corp. (NYSE:COF) – Both Visa (NYSE:V) and Mastercard (NYSE:MA) broke out of resistance areas last week, while financial institution Capital One lagged far behind.
The weekly chart of COF shows good multiyear support near $35. The stock had a massive rally off the early 2009 lows that ran out of steam in the latter part of May. After the early August sell-off in equities, the stock left a long bullish tail right at the $35 support area on the weekly chart.
Technical analysis 101 dictates that the more a level gets tested, the weaker it becomes. So far the $35 area has been tested three times. Should it get tested a fourth time, especially from a steep angle, it could easily fail to hold. The next real meaningful support doesn’t come in until the $20 level.
The daily chart shows the break below an intermediate support area near $47 in early August as markets sold off hard. Then, after briefly testing the multiyear support zone around $35, COF bounced hard and has been range-bound ever since (gray box).
The 50-day simple moving average recently crossed below the 200-day simple moving average right at the intermediate support area near $47, which should act as solid resistance.
On a daily break below $40, a short position could be initiated with a first target near $36. Alternatively, should the stock first move a little higher and into the $46-$47 area, one could initiate a short position there with stops above $48.
Given the various headwinds at work on the charts, the stock looks to be trading heavy and gravity is at work. On the other hand, a daily break above $48 on solid volume could be a game changer and lead the stock to rally into the $54-$55 area.
- See Sam Collins’ Daily Market Outlook: Where Should You Place Your Money This Week?
- See Serge Berger’s Daily Market Outlook: Will Stocks Revisit Their August Lows?
- See Sam Collins’ Trade of the Day: Gap Coming Up Short – Short It
