) reports earnings tomorrow afternoon and it could set the tone for the rest of its sector in the near term. The credit card stocks have been exceptionally strong over the past several weeks, after a lengthy period of nervous consolidation
. There was much uncertainty surrounding some companies in this group over the past few months as the Federal Reserve prepared to set limits on debit card swipe fees. While the Fed did indeed announce a limit on June 29, it was higher than expected, providing a boost to the group.
Investor's loath uncertainty even more than bad news, as it is difficult to deal with what is unknown. In looking at the chart for V, one can almost see the sigh of relief on June 29 as the stock surged after the ruling. Visa's share price easily cleared resistance
near $81.30 and didn't stop until hitting over $90 a few days later. Visa shares have been trading in a tight range near its highs since then as market participants digest the news. With earnings on deck, the results should act as a catalyst
to either spur the stock even higher, or send it back towards the prior breakout near $81.30. V's all-time highs loom just above near $97 and would be a key area to watch on a strong report. (For more, see Stocks For An Inflationary World
The most direct peer to Visa would be MasterCard Incorporated
). This would certainly be the stock to watch for a sympathy move to whatever happens with Visa. With MA not reporting until August 3, it could directly impact how it trades into its own earnings date. MA was actually performing stronger than V on a relative basis as it cleared its prior base well ahead of the ruling in April. It settled into a consolidation between $260 and $290 before exploding on June 29. MA is also trading in a very tight range and should move out of this range on the Visa report. (For more, see Credit Cards Introduction.
While American Express Company Common
) was not directly impacted by the ruling, it will likely be impacted by Visa's earnings report. AXP has a healthy chart after clearing its base in April and now trading near 52-week highs. AXP has also been a great performer over the past few weeks as it rebounded sharply after retesting support near $46. Traders should keep an eye on the $54 level above and $50 below in the near term as AXP reacts to Visa earnings.
Discover Financial Services
) is another stock in this sector to watch over the coming days. DFS had been steadily rising earlier this year before settling into a consolidation from April through June. DFS rallied sharply off its June lows and ended up at new all-time highs. The $25 level is important in the near term as DFS survived the first retest of this level a few days ago. (For more, see 5 Strong Stocks Poised For A Breakout.
It's always risky to guess which way a stock will trade after an earnings report, so the safest course of action is to watch how investors react after Visa's report. With many of these stocks already in clear uptrends, the path of least resistance would suggest a continuation move, but its always a dangerous game to assume anything. However, there will likely be plenty of trading opportunities in the coming days for this sector so identifying key levels will help a trader prepare regardless of whether the move ends up being higher or lower. (For additional reading, also take a look at Blending Technical And Fundamental Analysis
Charts courtesy of stockcharts.com
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.