Visa Inc. (V) has lifted into the top slot in Dow Jones Industrial Average relative strength after a torrid uptick that has posted a long series of new 2019 highs. Unfortunately, that's a problem for bulls heading into Tuesday's post-market earnings report because the stock is priced for perfection after reaching extremely overbought technical levels, raising the odds for a summer correction that shakes out the large supply of weak hands.
Wall Street analysts expect the financial giant to report earnings per share (EPS) of $1.32 on $5.70 billion in fiscal third quarter revenues. The stock beat second quarter earnings estimates and met revenue guidance in April's second quarter confessional, triggering six weeks of limp action, ahead of renewed upside into July. While investors expect good times to continue after this week's report, the reaction has even greater potential to generate much lower prices.
V Long-Term Chart (2008 – 2019)
The company came public in the mid-teens in March 2008, generating a modest uptrend that stalled at $22.46 in May. That marked the highest high for the next two years, ahead of a steep downturn that posted an all-time low at $10.44 during the economic collapse. The stock completed a round trip into the prior high in the first quarter of 2019 and broke out, but the uptick stalled in the mid-$20s, giving way to a failed breakout.
A 2012 breakout gained traction, generating impressive gains into early 2014, when the rally ended at $58.88. The stock cleared resistance at year end, posting new highs in 2015 and 2016, when the majority of the market universe was engaged in a major correction. This resilience underpinned a historic advance after the presidential election, more than doubling in price in just 22 months.
The decline into December 2018 found support at a six-month low, yielding a recovery wave that reached the prior high in March. The stock broke out immediately and added more than 18% into mid-July, lifting to the top of the Dow performance list. Even so, the monthly stochastics oscillator has now hit overbought levels that have triggered past sell signals, while the rally has reached a rising highs trendline (red line) going back to October 2016. Taken together, these technical elements raise the odds for a multi-week reversal.
V Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator matches bullish price action, posting a long series of new highs. This graceful uptrend points to loyal institutional and retail sponsorship, underpinned by the stock's market leadership. Realistically, any downside should be constrained by the Dow's current positioning at an all-time high, but the index is notorious for periodic rotations in which leaders become laggards and vice-versa.
A Fibonacci grid stitched across the September into December sell-off places current price action at the 2.000 extension, which is a common reversal zone. The stock mounted resistance at the 1.618 extension in just a few weeks, but the 2.000 level tends to generate much stronger headwinds, raising the odds for a pullback to the 50-day exponential moving average (EMA) and 1.618 level at $170. Price action in that zone should be instructive for long-term prediction, with a sturdy bounce opening the door to $200, while a breakdown would expose March breakout support near $150.
The Bottom Line
Visa stock is firing on all cylinders ahead of Tuesday's post-market earnings report, but the stock is now overbought and overloved, raising the odds for a multi-week correction.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.