Shares of the digital transaction giants have plummeted in reaction to fallout from the coronavirus pandemic, which will sharply lower volumes in the first and second quarters. Two elite members of this group have held long-term uptrends and reached deep support levels, while the third has already entered bear market territory. The prognosis looks poor for the entire group, but a little good news could go a long way in alleviating the deteriorating outlooks.
These companies depend on healthy consumer and business spending because they make their money by taking a little bite out of each transaction. In turn, that makes them highly vulnerable to periods of economic stress and contraction when everyone is hoarding capital to save for tough times. While the boom in card-less processing has eased some of this burden, it won't save these issues from a recession or depression.
Visa Inc. (V) stock has been engaged in a powerful uptrend since bottoming out near $10 in March 2009. The stock even held up well during the 2015 into 2016 correction, when it retained the multi-year string of higher highs and higher lows. The rally trajectory escalated following the presidential election. with just a single 20% correction marring an otherwise steady uptick, at least until February 2020.
The stock fell nearly 35% into Wednesday's 52-week low at $140, marking the biggest drawdown since 2008. The decline broke support at the 200-day exponential moving average (EMA) near $180 about 10 day ago and has now landed on a three-year trendline. Moving average resistance should now repel rally attempts, setting a profit target if the market engages in a multi-day bounce. Price action is still holding the 200-week EMA near $135, which marks a line in the sand that bulls need to hold at all costs.
Mastercard Incorporated (MA) shares sold off from $32 to $11.31 during the 2008 bear market and turned higher into the new decade, returning to the prior high in 2011. An immediate breakout generated healthy buying interest, yielding a channeled uptrend that stalled in 2014. Like its rival, Mastercard stock held a shallow sequence of higher highs and higher lows into the 2016 election and entered a second channel that posted exceptional gains into the October 2018 high at $225.35.
A 2019 breakout posted two broad rally waves, reaching an all-time high at $347.24 in February, ahead of a vertical slide that has relinquished 35% into Thursday's low. The decline has also arrived at 2019 breakout support and a multi-year trendline, with new resistance at the 200-day EMA near $280 unlikely to be breached in coming weeks. It also needs to hold the current low or risk failing the breakout and violating the 200-week EMA.
Dow component American Express Company (AXP) has underperformed its rivals since February, entering a bear market that could generate much lower prices in the coming months. The stock plummeted to a 13-year low in 2009 and turned higher, completing a V-shaped bounce into the 2007 high at $65.24 in 2013. The subsequent uptrend stalled in 2014, yielding a 21-month test at breakout support, ahead of an uptick that finally posted new highs in the first quarter of 2018.
The ragged pattern since that time posted an all-time high at $138.13 in January 2020, giving way to a February decline that has now stretched into a 51% loss. The sell-off has broken support at the December 2018 low, ending the string of higher highs and higher lows in place since 2016. It has also failed the 2017 breakout above the 2014 high, confirming a downtrend that could eventually reach psychological support at $50.
The Bottom Line
Digital payment companies have turned sharply lower in reaction to the pandemic, with Visa and Mastercard holding onto long-term uptrends while American Express has entered a bear market.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.