Visa (V) is on the verge of a deep selloff after breaking below key support on Wednesday. For the last eight weeks V has been moving sideways in a very narrow range between $84 and $81.
Despite a strong earnings report back on Oct. 24, which attracted very strong bullish interest, the stock was unable to break free. Now, after yesterday's weak action, the downside support layer has given way ushering in what could develop as a steep pullback.
Wednesday's drop left behind layers of overhead supply. From the start of September until the yesterday's open Visa was consolidating the huge bull run off the Brexit low. The stock was setting up well for a continuation higher after this healthy pattern had run its course. Instead the bottom has fallen out and with intense overhead pressure now in place further upside will be difficult without a very solid base.
For patient Visa investors much lower entry levels will be the result.
In fact, TheStreet's Jim Cramer, whose Action Alerts PLUS portfolio holds Visa, said in a recent note that he is "encouraged by the company's continued execution amid a difficult macro backdrop, yet would await a better entry point -- ideally mid-$70s -- before adding to our position."
As Wednesday's break of support extends, Visa investors should keep a close eye on the $78 area. This key level includes the stock's August low as well as the 200-day moving average. From current levels a test of this zone would take another 3.5% of downside.
If V can regain its footing near the August low a very low risk entry opportunity will develop. Until then Visa could prove to be a frustrating long.