Credit Card Stocks Offer Range-Bound Trading Opportunity

Credit card stocks failed to rise with the rest of the stock market in 2020 as investors feared a sharp decline in consumer spending amid stay-at-home orders and travel restrictions. However, the outlook looks brighter for the group this year, with the ongoing global rollout of COVID-19 vaccines and the likelihood of an increase stimulus checks under a Biden administration.

Key points to remember

  • Credit card stocks are well positioned to benefit from rising consumer spending in 2021, driven by the rollout of the COVID-19 vaccine and additional government stimulus.
  • Visa Inc. (V) stocks found buyers near the crucial chart Support at $200.
  • Embedded Mastercard (MY) stocks rebounded from the low trend line of a trading range in a move that could lead to further buying.

Additionally, payment providers are well positioned to take advantage of the online shopping boom that has accelerated throughout the pandemic. According market research site Statistacredit and debit cards will account for 27.6% of global e-commerce transactions by 2023. Below we take a closer look at the two largest credit card stocks and use technical analysis to work out various related to range business ideas.

Visa Inc. (V)

Visa operates as a payments technology company, facilitating digital transactions between consumers, merchants, financial institutions, businesses and government entities. The 63-year-old credit card company saw its bottom line contacts by 24% in the fourth fiscal quarter, as the fall in cross-border volumes did not compensate for the increase in payment volumes and transactions processed. Expect this metric to pick up in 2021 as consumers increase their travel routes around the world.

As of January 21, 2021, Visa shares had $454.13 million market capitalization and are trading flat over the past 12 months. Investors receive a modest dividend yield by 0.63%.

Since gaping Up 8% in early November on positive vaccine news, Visa shares traded sideways. However, buyers have reappeared in recent trading sessions to defend crucial support at $200. Those buying at these levels should anticipate a retest from December to January swing high around $220 while managing risk with a stop loss order placed below last week’s low. The trade offers a favorable 1:2.35 risk/reward ratioassuming a fill at Wednesday’s closing price of $206.01 ($5.95 risk per share vs. $13.99 reward per share).

The risk/reward ratio marks the reward potential investors can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare expected returns of an investment with the level of risk they must assume to obtain those returns.

Mastercard Incorporated (MA)

With a market value of nearly $335 billion, Mastercard provides transaction processing and other payment-related products and services worldwide. The company, which processes transactions in more than 150 currencies, reported a 25% decline in its latest quarterly income due to a decline in cross-border transactions. The blow was somewhat mitigated by an increase in demand for the payment processor’s cybersecurity and data analytics solutions, which saw around 4% increase in income. Mastercard stock is yielding 0.54% and trading just 3.48% higher in the year to January 21, 2021.

Since my ascent to a all-time high in late August, the stock price traded mostly in the $46 range. More recently, the price has rallied from the lower trendline of the range in a move that could lead to further buying in the coming weeks. Traders entering here must set a order for profit at $367.19, where the stock may find sellers near the previously mentioned all-time high. Reduce losses if the price breaks below the January 15th low at $321.88 as this would invalidate the range bound trade setup.

A order for profit (T/P) is a type of limit order which specifies the exact price at which to close an open position for a profit. If the price of the security does not reach the limit price, the take profit order is not executed.

Disclosure: The author held no position in the aforementioned titles at the time of publication.