Mastercard ( MA) was mentioned by Jim Cramer on his Mad Money show Tuesday night. Cramer said a high quality company like Mastercard simply did not deserve to plunge sharply (see the chart below).
Let's visit with the charts and indicators to see if this recent dip was a non-event or the start of something else.
In this daily bar chart of MA, below, we can see the slide lower that happened in recent days that got Cramer's attention. Prices broke below the rising 50-day moving average line and this break does not look that much different than one in early August. But there are other clues to look for.
The On-Balance-Volume (OBV) line is a coincident and sometimes a leading indicator created by the late Joseph Granville back in the early 1960's. This indicator rests on the old Wall Street saying that volume precedes price or that a stock must be accumulated (bought) before rising.
The OBV line on MA has been flat from early July even though prices have made higher highs. This difference in movement is a bearish divergence. Sometimes a bearish divergence can foreshadow a decline or a correction. In the lower panel is the 12-day price momentum indicator which shows that momentum weakened from August to September even though price made a new high. Another divergence.
In this weekly bar chart of MA, below, we can see that prices have nearly tripled in the past three years (I confess that I use my Mastercard a lot). Prices are above the rising 40-week moving average line and look extended when compared to the rally in 2018.
The weekly OBV line has not moved to a new high to confirm the new price highs and the 12-week momentum study shows that the rally has been slowing.
In this Point and Figure chart of MA, below, we can see an upside price target of $321 being projected. We can also see that a deeper decline to $263.49 may weaken this chart.
Bottom line strategy: Sometimes a dip is just a dip and sometimes it can be the precursor to a decline. There are some bearish divergences on the charts of MA but that doesn't mean investors are paying attention to them. Be on the safe side and play closer attention if MA breaks $263.
(Mastercard is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells MA? Learn more now.)
