MasterCard (MA) — short or long, right or wrong? (October 09, 2014)
I want to look at Mastercard ( NYSE:MA ). I find it always problematic to short stocks that have strong downside momentum in the same way that I find it problematic, not that it doesn’t necessarily work, it’s just problematic, there are issues with it, I find it difficult to buy stocks that are breaking out.
The reason is because literally you’re chasing them, you’re chasing the price higher all the while the folks that bought at lower levels are making more and more money because the stocks going up; some of that is your buying pushing it up, until finally they’re going to start taking profits, the stock’s going to stall out and pretty soon the stock moves down, and so the fact that you chased the stock ultimately results in your loss.
Now, the way you can go ahead and buy high and still sell higher is when you’re chasing a stock know that you’re chasing it. Guess what? You’re not in it early, but as long as you’re watching the stock, it’s a high maintenance trade, that’s all; it’s a high maintenance trade. So as long as you’re watching the stock move higher you’re going to be okay; you just have to know as the stock goes higher the chances of a reversal are higher.
Similarly, as a stock goes lower the chances of a bounce are higher. Why? Because as the stock goes lower it gets cheaper; so Mastercard ( NYSE:MA ), when it was at $78.00, it was a lot more expensive than it is at 71.83. At some point this stock is going to come and it’s going to bounce. The next real level of support, I would say, is 68.00, so that’s about $4.00 below where the stock is right now.
But as I look at this, this just looks like a volatility squeeze and a breakout to the downside. You can look at Visa ( NYSE:V ), this is kind of falling off a cliff a little bit too, so I would absolutely not be buying Mastercard ( NYSE:MA ) here, this is not what a bottom looks like, this is not what a low looks like, this is water pouring out the end of a garden hose. If the stock happens to bounce a little bit, if this thing comes up to 73ish, something like that, I think that’s when you want to fire off a short.
You can short the stock right now just know that you’re shorting it late, you’re getting in right while some folks will be thinking about buying the stock; but the pressure is to the downside, so if you want to short a little bit now I have no problem with that, as long as it’s a little bit. Because if the stock does rally up you don’t want to be hurriedly covering your short, you want to be looking for a short-term top so that you can short more. You must have a stop though.
If you are shorting right now know that Tuesday’s high, 74.32, that’s really, in my view, it’s just that kind of market, that’s really where I would have a buy stop. You could say, “Well that’s too tight Dan.” That would be fine too, if you’re short a small enough number of shares to where you’re not freaking out you can even have this clear up here as your stop. Short at 71.83, the stocks still up at 78.00, and you’re still short; you’re down a bit over 10 percent, but you’re comfortable with that, that’s fine too; I have no problem with that. But here’s the thing, you just need to have a plan, whatever your plan is just make sure you can articulate it and you’re going to be fine.
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