For the better part of a decade, the buy-and-hold strategy has rewarded investors handsomely as stocks have rallied higher in what is now the longest bull market in history. Apart from several minor corrections since the Great Recession, stock prices have barreled higher due to record-low interest rates, quantitative easing programs, tax cuts and corporate buybacks.
All that changed at the start of October when investors began to question corporate earnings, especially those of the FAANG stocks – a barometer not only for the technology sector but for the broader economy. Investors are also concerned about whether the Federal Reserve (Fed) will raise interest rates at a quicker pace than expected and the recent inversion of the yield curve – a signal from the bond market that indicates an imminent economic slowdown. "Unfortunately, until we get new news, the market continues to be a cauldron of concerns causing caution with investors," Art Hogan, B. Riley FBR's chief market strategist, told CNBC.
Traders who wish to implement range-bound trading strategies to capture profits in this new market environment may find rewarding trading opportunities in these thee oscillating credit services companies. Let's explore each one in more detail.
Visa operates a global payment network in over 200 countries. The San Francisco-based company provides authorization, clearing and settlement of electronic payment transactions. Visa generates revenue by charging fees by dollar and transaction volume. As of Dec. 12, 2018, Visa stock has a market capitalization of $312.35 billion, pays a 0.73% forward dividend yield and is up 21.7% year to date (YTD), outperforming the S&P 500 Index by over 20% over the same period.
Visa's share price traded steadily higher between January and October. Since that time, the stock has oscillated within a roughly 20-point trading range, which allows traders to capitalize by using range-bound strategies. Consider buying Visa on pullbacks to $130, where the price should find support from the bottom end of the trading range. Likewise, look at shorting moves to the top of the trading range at $145. Think about booking profits when the price generates a signal in the opposite direction. Traders should protect capital by placing a stop-loss order just outside of the trading range's lower trendline for a buy or upper trendline for a sell.
Mastercard, with a market cap of $204.22 billion, provides transaction processing solutions including authorization, clearing and settlement, as well as offering related products and services. The company charges dollar volume and card activity fees to generate revenue. Mastercard stock has an impressive YTD return of 31.51% and pays investors a modest 0.67% dividend yield as of Dec. 12, 2018.
Like Visa, Mastercard made the bulk of its YTD gains in the first nine months of the year but has traded sideways since October. Interestingly, volume and volatility have increased as range-bound price action continues. Traders should look to open a long position on retracements to the lower end of the trading range between $180 and $185, while another strategy could be to short rallies to the top of the range at the $210 level. Momentum indicators, such as the relative strength index (RSI) and stochastic oscillator, can be used in conjunction with price action to confirm overbought and oversold levels. Traders can use the same techniques mentioned above to set stops and profit targets.
Founded in 1998, PayPal is a payments processing platform that facilitates merchant and consumer transactions. Its payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant. The company earns revenue through transaction fees and offering other financial services such as lending. Trading at $85.51 with a market cap of $100.76 billion, PayPal stock has returned 15.36% YTD as of Dec. 12, 2018.
PayPal's share price looks similar to the first two stocks discussed in that it has traded sideways over the past two months. Traders should note that the 50-day simple moving average (SMA) has recently crossed below the 200-day SMA. Technical analysts refer to this as a "death cross" – an event that suggests a change of trend to the downside. Those who wish to play the current 13.5-point trading range should look to buy between $76 and $78 and to sell between $88 and $90.
Traders can automate the trade management process by using conditional orders, such as an order sends order (OSO). For example, a trader could attach an OSO to a limit order that triggers a one-cancels-other order (OCO) once the limit order executes. The OCO order simultaneously places a stop-loss and take-profit order and cancels the opposing side once filled.