Trade watch – Visa

From time to time, I would like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.

A key factor in making that decision will be coming up with which side of the trade you believe gives you the highest probability trade. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example.  Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

One trading opportunity that I’d like to review today is that of V (Visa).  Before discussing, please review the 1 yr. chart of V that I have outlined below:

If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.

This simplicity is on full display when you look at the chart of V above. V has been forming lower highs on each rally since June. At the same time, V has created a significant support level at $70. Although V has dipped below that $70 level a couple of times in the past few months, you will notice from the closing price chart below that it has never actually closed below that key $70 level.

Until yesterday that is! The series of lower highs seemed to give a hint as to what was coming. Although the hint may have been there, getting the confirmation of the breakdown is the “signal”. So, what does this tell you about the future direction of V?

The Tale of the Tape: V (Visa) has recently broken a key level of support.  When stocks or markets break key levels, they tend to accelerate in the direction of the break. Having broken the key $70 support level, V could be expected to go much lower. Entering a short position with a stop above the $70 level might provide you with an excellent trading opportunity.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT