Tuesday, July 13, 2010

Credit Card Processors Visa (V) and Mastercard (MA) as Potential Technical Short Setups

Visa (V) and Mastercard (MA) are always top of mind when considering names to add to the long side of the portfolio as they have a virtual oligopoly (not quite a duopoly but close!), and some saucy profit margins. About 6 weeks ago there was some fear of a quite significant blow to the fees charged on the debit side of the business in "fin (non) reg" but apparently the lobbyists won again (shocker) [Jun 21, 2010: Lobbyists Win? Mastercard, Visa Explode Upward Intraday]  Electronic Payments Coalition (yes that's the real name) wins again. (remember, all you are doing with a debit card is taking out money that is YOURS, on the exact same network that already exists for credit... so any fees for this are effectively handouts)

Either way, these 2 names are hedge fund honies, populating the lists of top holdings of countless of the top funds; oligopolies with huge moats are cool like that.  I was surprised when looking at their charts they have not bounced back more strongly.  In fact, one could potentially say they are setting up for a nice technical short trade.  Mastercard (MA) in particular has me torn.  This one truly could go either way - the bulls have a potential double bottom around $194... the bears have obvious resistance just above. 

Visa (V) is slightly better but not much more so... a tad closer to resistance of the 200 day and it did not make a lower low versus May... but we're stretching to find much difference here among the two.

A month or two from now it will be "so obvious" what the right choice (long or short) was. ;) Obviously in the student body left trading environment we now live in, if the S&P 500 starts a new leg up after this dead cat bounce, these 2 names will also push through resistance and anyone trading on technicals (resistance overhead) will be "wrong" as resistance will be broken.  But within a vacuum, in a world where all correlations are not 1:1, these both look very appealing in the near term from the short side.  I'm mulling.

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