Visa and Mastercard

Thought I'd do a quick post on two companies I watch - Visa and Mastercard. These two are finance companies but haven't suffered as much as many of the other stocks in the finance sector through 2008. There's a few potential reasons for that but perhaps one of the most important is that despite the growing problem of defaults on debt, neitehr Visa and Mastercard are responsible for that debt. It is the acquiring banks (e.g. Citibank) that have to foot the bill if someone decides they can't keep up with their payments one day. As such, V and MA are somewhat protected. However, they are transaction companies whose success depends on volume (and the size of transaction) and in a recession, people should generally be spending less. So, protected - somewhat; immnue - no.

Here's how the two charts have looked over the past few months (Visa since its IPO):

After initially IPO'ing at $60 or so, Visa rocketed up to hit a high at the top end of the 80's within just a few weeks. Since then it has been on a slightly downward track but more recently consolidating in a triangle. The top trend line is effectively the 50 day moving average. Volume is declining as would be expected during this period. With symmetric triangles, it's not possible to guess which way they will eventually move, but when they do, the trade should usually be in the same direction as the break out.

Mastercard, having been around for a few years now shows a similarly impressive rise over the past few years. It has suffered in recent months however, and when a head and shoulders pattern formed at the top (drawn in blue in the diagram above) it marked a top in the price (at least for now). I was actually able to successfully trade that break out when it took place, and got out at the target price. Since then, the stock managed to find support for a few weeks. When the next break out took place the stock almost immediately fell to the 200 day moving average which is where the stock is consolidating now. At this price we have a strong support line, the 200 day moving average and just below, the 50 week moving average. If price fails to find support here, we could be looking at MA moving lower quite quickly - and with a negative momentum divergence that has been building for weeks, it is certainly something worth watching.