A Credit Crisis of Different Kind

  • Posted by on May 17th, 2012 at 5:56 pm
  • Comments: 0

We have an unabating budget crisis in the US, a sovereign debt crisis in Europe and California so broke they are drooling for the Facebook IPO to be able to get some tax revenue. There are credit crises everywhere. But up to this point the credit card companies have been a lone bright spot in the credit space. That may be changing. Lets look at the two biggies, Mastercard, $MA, and Visa, $V.

Mastercard, $MA

Mastercard, $MA, hit a peak in its run higher 3 weeks ago with a top at 466.98, as seen in the weekly chart above. Since then it has been pulling back to the 20 week Simple Moving Average (SMA) which has been support for this 2 year run higher. It has held there many time. Like the last test of support the Relative Strength Index (RSI) is at the mid line and the Moving Average Convergence Divergence (MACD) indicator is crossed negative and growing more so. These support a move lower, but as occurred last time they also support consolidation. With a day to go in this weekly candle, this time there is a difference. If the week closes with another long red candle it will complete Three Black Crows candlestick pattern, a bearish pattern. The candles are bit wider apart than a solid pattern confirmation but Bulkowski’s work shows that this reversal pattern has a 78% success rate and is ranked #3 out of 103. The risk on the wider pattern is that it becomes oversold. That means support here. But we already knew to look for that. So a continuation lower supports a continued bear case. A retracement Friday above the 410 area would turn this week’s candle into a Hammer and add to the case for support and a move back higher in the trend.

Visa, $V

Visa, $V, is in a similar quandary. It to is pulling back to the 20 week SMA where it has found support in the past. No Black Crows here but there are some factors that make it more vulnerable on this test. Every other test of the 20 week SMA had the RSI very close to the mid line and the MACD at zero, without going negative. This test is about to happen with the RSI a good bit higher, but still trending down, and a MACD that is negative and growing more so. Not a guarantee that is continues but stronger support for the downside than it has seen rein the last 2 years.

Keep your eye on these two names over the next few days to see if they hold at support or break through and continue. A continuation lower is a great opportunity for a short trade with major support much lower in both.