How to Trade Mastercard Stock After Positive Reaction to Earnings

Buy Mastercard on weakness to the annual pivot at $264.19 and reduce holdings on strength to the quarterly at $305.07.
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Mastercard  (MA) - Get Report beat earnings expectations despite the adverse effects of covid-19 - and therein lies a fascinating technical analysis. 

The stock opened with a price gap higher. It traded as high as $285, then consolidated under the influence of its 200-day simple moving average at $282.59 and its semiannual pivot at $282.86. 

The Purchase, N.Y., credit-card giant saw weakening global spending, but Mastercard is confident that the future looks bright. Here is the backdrop as reported by TheStreet.com.

Mastercard has suspended its 2020 share buyback plans since it can't say how long or severe the covid-19 pandemic will be.

I question the company’s positive notion as consumer confidence dropped sharply. 

The University of Florida’s Consumer Sentiment Index nosedived in April to its lowest reading since tracking began in 1985. Declining sentiment implies slowing spending via credit cards.

The stock is not cheap as its p/e multiple is 34 with a dividend yield of 0.6%, according to Macrotrends. 

Mastercard has beaten earnings-per-share estimates in 19 consecutive quarters.

The stock opened Wednesday at $278.45, down 6.7% year to date and in correction territory down 20% from its Feb. 20 high of $347.25. 

The stock is also in bull-market territory 39% above its March 23 low of $199.99.

The Daily Chart for Mastercard

Daily Chart for Mastercard

Daily Chart for Mastercard

Courtesy of Refinitiv XENITH

The daily chart for Mastercard shows the power of a golden cross that was confirmed on March 5, 2019. 

This buy signal occurred when the 50-day simple moving average rose above the 200-day simple moving average.

After setting its all-time intraday high of $347.25 on Feb. 20, the stock cascaded lower.

The stock fell below its 50-day SMA (blue line) on Feb. 25, then broke below its 200-day SMA (green line) on March 6. This also put the stock below its semiannual pivot at $282.86, which is a magnet again today.

The stock fell below its annual pivot at $264.19 on March 13, which was retested as a magnet on Tuesday, setting the stage for a positive reaction to earnings.

After setting the low of $199.99 on March 23 the stock propelled higher back to its 200-day SMA at $282.62.

A death cross confirmed on April 14, when the 50-day SMA fell below the 200-day SMA, indicates that some profits should be taken today.

The Weekly Chart for Mastercard

Weekly Chart for Mastercard

Weekly Chart for Mastercard

Courtesy of Refinitiv XENITH

The weekly chart for Mastercard will be upgraded to positive if Friday’s close is above its five-week modified moving average at $269.06. 

The stock has been above its 200-week simple moving average, or reversion to the mean, at $188.79 for more than five years.

The 12x3x3 weekly slow stochastic reading is projected to rise to 39.55 this week from 36.46 on April 24. 

Back in late January this reading was above 90, putting the stock in an inflating parabolic bubble formation. And bubbles always pop.

Trading Strategy: Buy Mastercard on weakness to the annual pivot at $264.19 and reduce holdings on strength to the quarterly at $305.07. The semiannual pivot remains a magnet at $282.86.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.