Does the stock offer a further bullish potential?


Company Background


Visa Inc. is an American multinational financial services corporation, headquartered in California, US. The company has become a global player in the sector it operates – electronic transfer of funds throughout the world, thanks to its Visa debit and credit cards. As a matter of fact, Visa is the second largest card payment organization in the world after China’s UnionPay that became the world leader in the sector back in 2015. However, it is worth mentioning that UnionPay has become such a huge success mainly thanks to its huge customer base in China, while Visa is the biggest company in this sector in the rest of the world. In fact, Visa card payments currently account for around 50% of all card payments in the world.


Financial performance & quarterly earnings results

In the past few years Visa has evolved its organization into accelerating its migration of digital payments through the use of new channels, such as e-commerce, mobile and wearables. Moreover, the Company has been adopting new digital payment as well as innovative security technologies, such as contactless and tokenization.

Visa has also accelerated the pace of change in the digital payments sector by creating application programming interfaces (APIs) that have been made with an effort to increase the company’s access to its network, products and services, as well as offering different innovation opportunities through its global innovation network locations, which also allows the company to build partnerships with new players such as financial technology companies (known as fintechs).

The company’s financial statements are showing its strong financial performance over the past 5 years. In fact, even though there was a bit of a decline in revenues last year caused by the virus, Visa still managed to report strong financial results and proved that its presence in the sector is very solid and it could perform well even during tough times on the market.

Moreover, the acquisition of Visa Europe in 2016 was one of the most important long-term growth strategies for the company. Visa expects that to help its overall market positioning in Europe, projecting the sector to become a $3.3 trillion payments market in the future, which would further grow its revenues and profits in the longer run.

Due to the coronavirus pandemic, Visa has been reducing costs by lowering the marketing and administrative expenses, allowing it to cut its overall operating expenses by 10%, helping the company also beat analysts’ earnings expectations in the past few quarters, which of course also helped boost its share price afterwards and make more money for traders and investors.

By looking at the 4th quarter earnings results, we should say Visa reported better earnings than analysts had expected, driven by an increased debit and e-commerce trends in the past 3 months of last year. In other words, the company delivered a net profit of $3.13 billion or $1.46 per share, which came out a lot better than the $1.28 per share expected by analysts. Furthermore, the company’s officials were positive for the future performance of the company in 2021 and raised the guidance for the next few quarters this year. In fact, the officials of the company signaling for a further improvement within its financial statements is usually seen as a very good indication for the future direction of the share price. Therefore, traders and investors took advantage of that and started buying the stock immediately after the event, leading to a massive rally to the upside.

Visa is expected to deliver its 1st quarter financial results on the 29th of April and the expectations are for earnings of $1.27 per share. Following the strong financial performance of the company and the continuous improvement in its financial statements as well as the solid performance during the coronavirus pandemic, we believe it is very likely that Visa would beat those estimates, which would give us a chance to make high profits on the stock to the upside after the report.


Technical Analysis

By looking at the daily candles, one could see that Visa stock bottomed out from the $133 lows in March after the huge sell-off on the market caused by the coronavirus outbreak last year. Since then, the stock has been in a massive uptrend and has kept on rising, breaking strong resistance levels, such as the $180, $200 and the $220 to reach the current highs at $226. In other words, the stock is up 70% in 12 months and has been making lots of profits for its shareholders.

The most recent breakout was above the major resistance at $215-$220 which is now the key support we are looking at. In other words, after attempting to break that level a few times since the end of August last year, the price finally managed to break above that resistance and that gave us further bullish indications to follow up on and a signal that it could rise further in the near future. However, the technical indicators have already gone towards the overbought territory. RSI is right at the 80 mark, while the RSI and Stochastics have gone to the overbought area and are giving some indications for a potential short-term correction before another strong bullish rally takes place.

We would like to remind our followers that the company is delivering its 1st quarter 2021 financial results in the end of April, meaning there is enough time until the report, which means we would prefer to wait for a bit of a profit-taking correction after the huge bullish rally we have recently seen before we start buying the stock at a strong support mark.

Overall, we expect Visa to find lots of buying pressure at the first major support at $220, followed by the next support at $205 – $200, followed by the 3rd key support mark at $193. In other words, the price is likely to reverse back up from one of these strong support levels. Therefore, we would be looking to buy the stock at those levels in order to maximize our profitability to the upside in the near future.


Chart: Visa Inc. (V)


As you know, we at Dow Experts always include the importance of both fundamental and technical factors in our analyses because we believe they are key metrics for the overall performance of the instruments we analyze. Furthermore, before we take an action to buy the stock we are evaluating, we analyze the performance of the biggest ETFs out there in which the company we analyze plays a major role. In other words, we use our cross-sector correlation analysis in order to find out whether there is a similarity between the price-action trade of the current stock we are evaluating and if there is a confirmation by certain ETFs that have invested in that particular stock.

Only if there is a clear confirmation between the RTFs and indices we use for our correlation analysis then we can confirm whether it is a good idea to enter the market at the current prices or possibly be patient and wait for a better entry level at a more attractive price. In fact, it is important to mention that entry and exit levels are among the most important factors that determine a trader or an investor’s success on the market.

The XLK tracks an index of S&P 500 technology stocks, including all of the big names associated with the technology sector in the US, such as Apple, Microsoft, Visa, Intel, Mastercard, Cisco, Nvidia, Paypal & others. In fact, the XLK has been among the best performing ETFs in the past decade overall, following the great innovation that we have seen among those leading companies within the sector. They have kept on coming up with new products and services and have practically been leaders in the sector they operate. That of course in turn has been extremely bullish for their share price performance that has been therefore been boosting the XLK, helping it perform so well in the meantime as well. Actually, Visa plays an important role within the XLK with its 5.3% weight within the ETF, making it one of XLK’s top holdings.

By looking at the daily chart, we could see the massive uptrend that has been going on the XLK in the past year. In other words, the price had gone up from $69 to the $139 highs that it reached in the middle of February, meaning the price had exactly doubled its value in 11 months. Since then, traders and investors have been cashing some profits, which was quite logical and expected after such a massive bullish rally. Thus, the price dropped towards the $125 lows on the 8th of March and failed to break that level as there is a key support at that point that motivated traders to take advantage of the recent correction and start buying at a decent discount, making high profits to the upside. Logically speaking, the price bounced from that level immediately to reach the current highs at $131. Yet, it is currently at a strong resistance level and if it fails to break it to the upside we could expect the XLK to test the key support at $125 again in the near future where traders and investors would buy even more after the recent profit-taking correction and that could be a great buying opportunity around those levels. The diagonal support line matches with the horizontal support at that point, which also aligns with the 100-day moving average at that point and the lower Bollinger band, while the other indicators, such as RSI, Stochastics and MACD are already crossing up in the oversold territory, all giving strong bullish indications at around $125.

By analyzing the performance of the XLK we shall say it clearly confirms our bullish stance on the Visa stock.


Chart: XLK


The SPDR S&P 500 ETF (SPY) tracks a market-cap-weighted index of US large and mid-cap stocks and is the best recognized and oldest ETF and typically tops ranking for largest assets under management (AUM). In fact, the SPY has got $331 billion in assets under management. The SPY is also the ETF with the greatest trading volume with its daily average of $25 billion. Moreover, the SPY is very well diversified thanks to its investments in different sectors on the market. Its biggest holdings are Microsoft Corp., Apple Inc., Amazon.com, Facebook Inc., Alphabet (Google), Berkshire Hathaway, Inc., JPMorgan Chase Inc. & Visa Inc.

Visa Inc. represents around 1.5% of SPY’s overall portfolio.

By looking at the chart, one could see the massive uptrend that has been going on the SPY in the past year. In other words, the price has gone up from the $228 lows in March 2020 to the current highs at $394 (73% rise in 12 months), making it one of the best performing funds during the pandemic. After the huge spike to the upside that motivated market participants to start collecting some profits in the middle of February around the current levels just below $400 the price dropped to reach the strong support mark at $375, which led to a massive bullish interest at that point, followed by a quick bullish reaction afterwards. Thus, the price has been trading in a range between $394 and $375 in the past month. We believe the current resistance mark could lead to a profit-taking interest among traders and investors and that could bring the price a bit lower in the near future that could easily send it towards the strong support at $375 where lots of buying pressure is expected again. In case the price breaks that level to the downside then it would be heading towards the next strong supports at $365 and $350. The price is then expected to start reversing back up from one of these levels. Overall, following the overall bullish market sentiment at the moment we remain bullish for the SPY and believe these short-term profit-taking corrections are giving great buying opportunities to benefit from.


Chart: SPY

Overall, the recent performance of the SPY further confirms our bullish stance on the Visa stock and we would like to add it to our portfolio.


Conclusion

We at Dow Experts enjoy evaluating the performance of different companies and investment opportunities. Thus, we follow all the great market events, political and economic factors and reports, as well as companies coming up with their new products and other key factors that have an impact on different price movements on a daily, weekly and monthly basis.

Today’s analysis focused on Visa Inc. (V). The company has been a global leader in the technological and payments providing sector for a long time now and has been reporting very strong financial results, increasing its shareholders’ wealth.

The company delivered very strong financial results even during the pandemic. It managed its costs properly and that led to a 10% reduction in its overall operating expenses in order to report better than expected results and further boost its share price. Visa is expected to report its Q1 2021 on the 29th of April and we believe it could deliver a strong quarter performance again, which would be even more bullish for the share price afterwards. Therefore, based on the company’s strong financial performance and market positioning, as well as the upcoming quarterly financial results next month, we have decided to add the stock to our portfolio.

However, we don’t like buying so high and prefer to wait for a profit-taking correction that would give us a chance to buy Visa stock at a decent discount and at a strong support mark. As we mentioned earlier, there is a very strong support at $215 where we are expecting to see lots of buying pressure. Therefore, we would start opening our first buy positions at around $215. In case the price drops further in the short-term we would be interested in buying more of it at the next key support at $200-$205 where even more buying pressure is expected.
Our first take-profit target would be at $225, followed by the next target at $240-$245 where we would be fully cashing in our profits and wait for another correction on the stock that would give us a chance to buy it again at a decent discount and follow the strong bullish rally.




Sincerely,

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