Nail Down a Profit on This Stock's Potential Breakout in 2-4 Weeks

StreetAuthority Network

Credit card and global financial services company, Visa (NYSE:V), has been in a major uptrend since 2011, and its winning streak doesn't look like it's going to come to an end anytime soon. The stock seems to be defying gravity, which has weighed on other financial stocks at times during the past two years.

Visa continually worked itself higher with a series of rallies and consolidation phases, thus keeping the stock well balanced and less prone to jerky moves lower. And it now appears to be setting up for yet another potential breakout.

Visa is not the only credit card stock that currently sports a stellar two-year chart. Both Mastercard (MA) and American Express (AXP) have seen their stock price appreciate greatly since 2011, and in fact all the way back to 2009. 

The multi-year chart makes the highly positive correlation of the three stocks visually obvious. I point this out not to draw a pretty chart, but as a reminder to always keep an eye on close competitors when focusing on a trade setup, because lousy trading action in one can quickly shift over to its peers. 

View gallery

.
Credit Card Stocks

The multi-year chart of Visa below is orderly, albeit steep and quite extended in duration. The stock's significant breakout in December 2011 past a multi-year resistance line around the $98 mark ultimately gave it the all-clear signal to push higher.

How much higher? Thus far from the breakout point the stock has jumped an amazing 88%. Any short sellers were likely pushed out soon after the breakout past $98, meaning the majority of the two-year rally has likely been new money flowing into the stock, as opposed to shorts being squeezed. 

From a risk management point of view, the stock's uptrending channel (red parallel lines) makes it easy for traders to spot if a change in trend were to occur. Speaking of the channel, note that Visa is currently trading near the upper end, which is to say that from the multi-year perspective any shorter-term pop may eventually lead to a measured mean-reversion move lower.

View gallery

.
V Stock Chart - Weekly

On the daily chart below, the stock offers traders two more areas of reference: the 50-day simple moving average (blue line), currently around $175.50; and the May 17 high near $184.50. The May high is just the most recent resistance line, which is now looking to morph into yet another breakout. Note the previous two breakouts this year, each of which only lasted a couple of weeks before settling back into a consolidation phase.

View gallery

.
V Stock Chart - Daily

When searching for trade setups, one of my top criteria is to find ones that allow for clear, no-brainer stop-loss levels, and we have that here with Visa.

The most recent tight trading range in the stock spans from $185 on the upper end (on an intraday basis) down to $176.50 on the lower end. Should the stock close above $184.50, the breakout will have occurred, while any bearish reversal to $180.50 will immediately prove the breakout wrong.

Recommended Trade Setup:

-- Buy V on a daily close at or above $184.50
-- Set stop-loss at $180.50
-- Set price target at $193-$194 for a potential 5% gain in 2-4 weeks

Related Articles

View Comments (0)