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MasterCard’s three-year bull run may be over

A MasterCard sign on a door in New York.

Mark Lennihan/AP Photo

Hi Lou:

I've followed you for years, keep up the excellent technical analysis.

Could you put your magnifying glass on MasterCard? Seems to be very volatile of late.

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Cheers,

Gerry

Hey Gerry,

Thanks for your support and kind words. I am very pleased that you are deriving benefits from my efforts.

MasterCard Incorporated has been very generous to investors over the last three years but the uptrend has been breached and the stock has recently tested support along the 200-day moving average. When the company announced its earnings in January of 2014 it missed street estimates, which might explain some of the volatility you have observed.

An audit of the charts will improve our understanding of how best to proceed with this stock.

The three-year chart reveals the breach of support along the established uptrend line and the 50-day moving average that occurred in January of 2014. Also of note is the resistance that has formed along the 50-day moving average since the breach. In technical analysis it is a rule of thumb that support and resistance are two edged swords. Where we once found support, we now meet resistance.

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The MACD and the RSI both generated sell signals before the release of its fourth-quarter results on Jan. 31, 2014. Finally, the stock tested support along the 200-day moving average, caught a bounce, but again met resistance along the 50-day moving average.

The six-month chart displays the double top that formed in January as the shares hit a 52-week high of $84.74. A double top signals a trend reversal which is exactly what has transpired. What is evident at this writing is that a new downtrend has been established and that every attempt to move higher has met selling pressure.

The company is expected to report first-quarter results in May which will provide the next major flex point for MA. On a macro level you should also pay attention to the efforts being made by technology companies to get in on the fees generated in the e-payments space. A number of Silicon Valley titans are making strides towards creating digital wallet applications for smart phones. Facebook recently announced that they had been approved to offer a payment system in Ireland while Google has teamed up with Domino's Pizza to make it even easier to pay for your pie.

MA needs a great first quarter in May to break above the downtrend that has dominated 2014.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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