Credit card stocks have struggled to process gains in 2020 amid slumping travel demand and a dive in consumer spending as the coronavirus pandemic redefines spending patterns. While the embattled group has still managed to return around 7% year to date (YTD), gains fall well short of the S&P 500's 11% rise.
- Last week's announcement about a successful vaccine has given hope of revival in people booking trips for work and leisure.
- American Express Company (AXP) shares broke above a broad symmetrical triangle pattern on above-average volume.
- Mastercard Incorporated (MA) shares declined back below the 50-day simple moving average (SMA) before buyers closed the price above the closely watched indicator Friday.
Looking ahead, last week's announcement about a successful vaccine on the horizon has given hope of a revival in people booking trips for work and leisure and spending more on everything from watching the latest hit at the box office to eating out at cafes and restaurants. Indeed, Neilson research expects payment cards to generate $10.72 trillion in purchase value on goods and services during 2024, up 35.7% from 2019.
Below, we take a closer look at two leading credit card stocks and analyze their charts to identify possible trading opportunities.
American Express Company (AXP)
Operating in roughly 130 countries, Dow component American Express provides consumers and businesses charge and credit card payment products. The New York-based payments giant generates about 26% to 30% of its revenue from travel and entertainment, according to Susquehanna analyst James Friedman, per MarketWatch. A bounce back in business travel next year would particularly benefit the company's corporate travel services, which have suffered during the health crisis. Despite trading 6.25% lower on the year, American Express shares have added nearly 10% over the past month, outperforming the industry average over the same period by 8% as of Nov. 16, 2020. Investors also receive a modest 1.5% dividend yield.
After a head-fake trade breakdown below a broad symmetrical triangle, the share price promptly reversed course to break out above the pattern's top trendline on above-average volume. Those who buy the stock's recent bullish momentum should consider placing a stop-loss order under last week's low at $109.55 and targeting a move back up to the February pre-COVID high around $138. More conservative traders may look for an entry closer to $103.50, where the price finds support from the triangle's upper trendline.
Support, or a support level, refers to the price level that an asset does not fall below for a period of time.
Mastercard Incorporated (MA)
Mastercard provides transaction processing and other payment-related products and services in the United States and globally. Baird analyst David Koning told clients in a research note that cross-border travel makes up 20% to 25% of the payments company's revenue. Koning estimates that income in these areas has been down around 70% in recent months as people continue to work and connect remotely amid rising infection numbers. Although a vaccine will take time to roll out, the stock appears set to benefit if a return to pre-COVID working conditions eventuates throughout next year. As of Nov. 16, 2020, Mastercard stock has a market capitalization of $334 billion, offers a small 0.48% dividend yield, and is trading 12.74% higher YTD. Over the past month, the shares have slid 3.13%.
Since last Monday's gap higher, Mastercard shares declined back below the 50-day SMA before buyers closed the price above the closely watched indicator Friday. Active traders who buy here should look for a retest of the stock's all-time high at $367.25 while managing downside risk with a stop placed beneath the Nov. 12 low at $326.30. Those seeking a deeper retracement should keep an eye on the $320 level, where price encounters support from a short-term horizontal trendline.
A horizontal trendline is commonly used in technical analysis to mark areas of support or resistance.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.