One of the primary components of the technical analysis of pure price action is that it factors into the process of investor psychology. Often, pattern breakouts or Fibonacci retracements are self-fulfilling prophecies, and the attraction of large round numbers fall into this category.
Shares of MasterCard broke through the $100 level in October, and this large round number is also a 38% Fibonacci retracement of the July low and the November high.
A bearish engulfing candle quickly formed on the weekly chart, and the price has since retested the $100 level several times. The stochastics oscillator on this time frame has moved out of an overbought condition and continued lower and through its center line, but the accumulation/distribution line is trending higher and above its 21-period signal average.
There is additional bearish evidence on the daily chart that suggests that the magnetic effect of the $100 level is dragging on the stock price.
On the daily time frame, an eveningstar pattern marked the October high. This formation is a three-period bearish reversal pattern and consists of a large up candle, followed by a doji candle or one with a long upper shadow and a narrow opening and closing range, and completed by a large down candle. It represents a transition from bullishness to bearishness. In this case, it was followed by a series of lower highs and lower laws that have defined a declining channel.
A doji candle that formed in Tuesday's session was positioned above the 50-day moving average and the $103 level, which acted as resistance in October. The loss of momentum is reflected on the daily moving average convergence/divergence indicator, which is overlaid on a weekly histogram, and is tracking lower and below the center line on both time frames. Chaikin money flow is still in positive territory, but accumulation/distribution, the baseline for the indicator, has moved below its signal average.
Mastercard is a good risk/reward short at its current level using a stop that trails above the channel downtrend line and a price objective that targets a retest of the support line.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.