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Visa and MasterCard Deserve Some Credit


Consider long positions with these staples in domestic economy.


Bank Index (BKX): the banks closed right above critical support at 41.62 Thursday -- the market bulls need to rally around the banks right here or there could be a stampede for the exits; staunch resistance at 44.82.

Crude Oil: crude has rallied nicely over the last few sessions but now will begin to face stiff resistance levels beginning at 76; very minor support exists at 74; significant support is down at 66.06.

short-term support is at the uptrend line, which currently comes in at around 1102; gold turned and started to bounce in the after-hours session Thursday night; short-term resistance at 1143.40 (the December 11 high). I'm bullish on gold here and would advocate getting long with a stop in place on any weekly close below $1,095.

Charts of the Day: Visa and MasterCard

Click to enlarge

  • Revisiting the holiday theme, my firm, ThirdWave, examined Visa (V) and MasterCard (MA) today. Their products/services are staples in the domestic economy and are increasingly important in the global economy.

  • The first chart is that of Visa. I experimented with different moving averages in an attempt to find those that have shown the greatest recent reliability as support or resistance. With Visa, the 30- and 110-day moving averages seem to work best as support levels for mild and more substantial pullbacks, respectively.

  • Currently, the 30-day moving average comes in at $81.43, about 6.5% below Thursday's closing price. That level approximately corresponds with the lower end of an upside gap that was created five sessions ago. That should provide the first good entry point for new longs.

  • Those currently long of Visa should use the nearest horizontal line support at $84.67 (June 2008 peak) as a trailing stop with the idea of re-entering the stock at $81.43 or at even lower support.

Strategy: I'd wait for a pullback in Visa shares to buy; I'd look first to the 30-day moving average at $81.43 as a good entry point for new buys with a stop loss in place on any close below that level.

Click to enlarge

  • The chart of MasterCard isn't quite as bullish as Visa's chart, but it's still a market-leading stock. Both MasterCard and Visa are plugged into the growth of global consumption and the ever-increasing amount of e-commerce activity.

  • Again, experimenting with the moving averages yielded non-traditional lines. This time the 65- and 140-day moving averages proved most reliable as recent support and resistance.

  • The 65-day moving average comes in as the closest support at $226.98, which is 8.6% below Thursday's closing price. That level approximately corresponds with the first of two uptrend lines that show up on MasterCard's chart.

  • The reason MasterCard's chart isn't as bullish as Visa's chart is that masterCard is sitting right below its horizontal line resistance at $248 (unlike Visa, which is just above horizontal line support).

  • Additionally, MasterCard's RSI indicator is in a consolidation pattern of its own -- which is neither bullish nor bearish presently. Once the RSI breaks out of that pattern, it will serve as either a confirmation or divergence signal. For now, though, all it does is cast a bit of doubt on whether MasterCard will break through its immediate resistance at $248.

Strategy: Like Visa, I'd advocate a long position in MasterCard -- but at lower prices. Look for a first entry into the stock at its 65-day moving average which currently comes in at $226.68. It's a rising average, though, so be sure to adjust your entries higher as the average rises.

Inter-Market Observations:

Bond Prices (falling): Our long-term view is that inflation is going to be a problem and that rates will continue to trend higher. However, based on the action Thursday, Treasuries are still being viewed as a safe harbor by global investors. One has to wonder when that perception might change given the current state of US financial affairs and the long-standing fiscal trends. When will US debt no longer be considered "relatively" safe?

Stocks (faltering): A big down day combined with a big pickup in volume and weakening internals gives us more reason to believe stocks are vulnerable here. Be very selective in adding exposure in equities right now and most of all -- honor stops.

Commodities (pausing): Dollar rises, commodities fall -- that's the way it's been and will likely continue to be for a while. Commodities may catch a rally soon, though, if the greenback takes a rest after its recent run. Additionally, I'd point out that at some point, there may be a change in the linkage between the US dollar and commodities -- especially in an inflationary environment (for the entire globe, not just us).

US Dollar Index (rising): Despite any pullbacks that may occur (at any point), our intermediate-term target for the dollar is the 80 to 81 area.

No positions in stocks mentioned.

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