Greenspan Fueled Selloff, Still on Sidelines in Mastercard (MA), Visa (V)

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Just when you thought Greenspan rode off into the sunset on his white horse and enjoyed life a bit, there he was on CNBC talking about the current state of the economy (for which Mr. Artificially Low Interest Rate continues to take no credit for).  We all know that when Greenspan talks people tend to listen and the market tends to react.  Now, I’m not saying Greenspan’s comments were the catalyst for the late day sell off, but it’s a half way decent explanation, so I’ll go with that tonight. 

While Greenspan acknowledged that the economy has shown great resiliency for the most part, he also mentioned in the same breath that we’re living through a "once-in-a-century" crisis and that that housing was nowhere near a bottom.  However,  this is the same guy that said on June 13th, the worst of the financial crisis was over, so as is the custom with anyone appearing on CNBC, take it with a grain of salt.  Mr Artificial Rate, it’s time.. time to enjoy the personal fruits of your excessive rate cuts on a beach in a far away land. 

The market didn’t get off on the right foot this morning either, as GDP came in a bit lighter than expected at 1.9% (economists predicted 2.3%) and no doubt propped up a bit by  that stimulus check.  Let’s see where those GDP numbers are towards the end of the year.  Weekly jobless claims rose again as well, marking the 3rd time in the past 5 weeks.  The monthly jobs data tomorrow morning will certainly be a market mover.

All in all, it wasn’t that bad today.. at least not as bad as the price plummet headline would have you believe.  Once again there wasn’t much conviction behind the move.. that is, not a lot of volume on the sell side.  I still view this current market as  buy on the pull backs environment, so if we get another 100 or 200 on the downside tomorrow, keep an eye on your watch list and if one or two pull back and offer a decent entry, take a chance on it. 

I do think there is some decent upside potential left in this market and I’ll discuss the important resistance levels I’m watching in the weekend report on Sunday, but with Jim Cramer starting to call a bottom in housing and the market… nah, even though Cramer is the ultimate contrarian indicator, I still think this market has some pop in it still.  Let’s see how the market reacts to the jobs number tomorrow. 

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Why I’m still out of Mastercard and Visa

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Visa was the biggest IPO in US history when it began trading back in March.  On April 3rd I highlighted the breakout and initiated my first position in the company after it broke out of a very bullish looking triangle formation.  http://selfinvestors.com/si/visabreakout

Less than one month later, after vaulting more than $20 bucks, I decided to lock in my profits.  Way over hyped, way overbought.  At 9:09AM on April 3rd I sent the following to my Gold & Platinum members:

(04/30/08 9:08:58 AM): Ok, I’m going to go ahead and take profits in Visa (V). Lots of giddy people out there with big Visa profits, but this is a stock that is WAY overbought. Considering we are still in a bear market and I’m up 30% in just a couple weeks, I’ll take the gift and sit tight for awhile. I really believe I can get back in at a significantly lower price, particularly when the lock up period
expires and this market pulls back. If you’re a long term holder with a multi year time horizon it probably makes sense to ride it out. I am not. I trade based on current market conditions and the
action in individual stocks over a shorter time period. I’m avoiding the greed in Visa and out at 83.67 as it breaks the bullish formation on the 5 min intraday chart.

As it turns out, the stock ramped up another 6 bucks or so before the run died and it spent the next two months carving out a large, bullish wedge formation.  One day before the holiday, on July 3rd it broke that bullish formation setting it up for a much larger cup base which it is forming now.  I haven’t had time to analyze the earnings reports of both Visa and Mastercard but I know how the market reacted.  Despite beating EPS estimates, both were hit hard on heavy volume setting both up for a deeper correction.  These companies are absolutely not immune to a faltering economy and until the deceleration of growth in both earnings and revenues for both companies stabilize, it pays to watch on the sidelines and wait for the next base to form. 

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