Mastercard (NYSE: MA) has been riding in a strong upward channel since 2021, consistently delivering steady returns to investors. However, recent technical indicators suggest a potential shift in momentum.
Notably, an analysis by TradingShot points to emerging bearish signals, raising concerns about a near-term pullback.
Bearish divergence and key levels
While Mastercard’s price has maintained its position within a long-term bullish channel, the one-day Relative Strength Index (RSI) is now showing signs of weakness.
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According to the analysis, since October 18, the RSI has been forming lower highs, signaling reduced buying pressure.
This divergence is at odds with the stock’s price, which has continued to make higher highs. Such bearish divergence is a critical warning sign, as it frequently precedes corrections in upward trends.
Adding to the concerns, Mastercard recently tested its 50-day moving average (1D MA50) for the first time in four months. Historically, this level has served as a critical support, with previous breaches triggering retracements to significant Fibonacci levels.
Analysts now point to the 0.382 Fibonacci retracement level, suggesting a potential short-term target of $495, a notable drop from current levels.
As of press time, Mastercard stock is trading at $525, reflecting a 1.15% decline over the past five days. However, the stock has managed to post a 2.22% gain on the weekly chart.
Fundamental strength and growth drivers
Despite the bearish technical signals, Mastercard’s fundamentals remain robust. The company’s Q3 FY2024 earnings exceeded profit expectations, reflecting a strong financial performance driven by a 13% year-over-year rise in net revenues to $7.4 billion.
Key metrics revealed significant growth. Gross dollar volume climbed 10% YoY to $2.5 trillion, driven by double-digit growth in processed transactions.
Cross-border volume, a critical indicator of international travel spending, jumped 17% YoY in local currency terms, reflecting a continued rebound in global travel.
Notably, month-to-date cross-border volume expanded 18% through October 28, building on September’s 16% growth.
These results helped Mastercard to outpace its rival Visa Inc. (NYSE: V) in key segments, including the U.S. debit market, further cementing its competitive position.
Tailwinds from rate cuts and shareholder rewards
Looking ahead, the Federal Reserve’s recent interest rate cuts could act as a tailwind for Mastercard, potentially spurring increased credit card spending by lowering borrowing costs.
This would likely drive higher transaction volumes and fee revenues, a core element of Mastercard’s business model.
Moreover, the company’s board recently approved a $12 billion share repurchase program, adding to its already aggressive buyback strategy.
The company also announced a 15% increase in its quarterly dividend to $0.76, marking its 13th consecutive annual dividend hike.
While the long-term outlook remains positive, technical signals indicate that investors should brace for a potential short-term correction.
For traders, this presents an opportunity to capitalize on the anticipated pullback, while long-term investors could find attractive entry points after the market stabilizes.
Featured image via Shutterstock
