Jim Cramer loves when strong, secular themes drive stocks. One of his favorites has been the shift from paper to plastic as credit cards increasingly dominate payments worldwide.
“As we move closer to a cashless society, I want to go off the charts with the help of Bob Lang. He’s the founder of ExplosiveOptions.net as well as being the brilliant technician in the three-man, all-star team behind TheStreet.com’s Trifecta Stocks newsletter,” the “Mad Money” host said. “I want to get a better sense of what’s happening with the four major credit card companies. Of course, we’re talking about Visa, Mastercard, American Express, and Discover.”
Cramer began with the daily chart of Visa, the largest credit card issuer of the four. Up nearly 30 percent so far in 2017, Visa is one of the Dow Jones Industrial average’s top components, partially responsible for the average’s recent 22,000 landmark, Cramer said.
Having hit an all-time high on Tuesday, Visa’s stock has been notoriously tough to buy into at lower levels, Lang said.
“He notes that every time Visa’s pulled back to its short-term 50-day moving average, that’s the blue line, it’s been an extraordinary buying opportunity,” Cramer said.
Visa’s rally can also be verified by the strong volume behind the move, Lang said. Big runs that happen on high volume rather than weak volume tend to be much more sustainable, he added.
“Put it all together and Lang thinks Visa’s the best name in the group,” Cramer said. “He wouldn’t be surprised if the stock can climb up to $120 by the end of the year. That’s up nearly 20 percent from these levels.”
Mastercard has also been rallying healthily, Cramer said, turning to the second-largest credit card company’s daily chart.
Lang pointed out that the moving average convergence divergence indicator, a tool that predicts upcoming changes in a stock’s trajectory, is still in overbought territory, meaning Mastercard’s shares may have run too far too quickly.
“Ideally, Lang would like to see Mastercard pull back to its 50-day moving average. That’s been an excellent floor of support for the stock,” Cramer said. “However, given that Mastercard’s doing quite well and the company has a large, aggressive buyback, you might have to wait a long time for that kind of decline.”
After years of disappointing investors and struggling to lift its stock, American Express has been on a tear since the company turned itself around in 2016, Cramer said.
Lang noticed what looked like a cup-and-handle pattern, when a stock gets sold off and then quickly bounces back before trading sideways for a while, forming in the card issuer’s chart.
“This is one of the most reliably bullish chart formations around,” Cramer said. “Now that American Express has broken out above $85, Lang is betting it could reach $100 very soon.”
Finally, Cramer turned to the runt of the group, Discover Financial Services. Shares of Discover are down 14 percent year to date, and Lang does not expect the outlook to improve.
“After the stock’s big breakdown in March, it’s made a series of lower lows and low highs. That is not a good sign,” Cramer said.
Since the beginning of the year, Discover has run into two possible ceilings of resistance at $64 and $66, and with so much going right in its rivals’ stocks, it seems to hint at negative prospects.
“Here’s the bottom line: The charts, as interpreted by Bob Lang, suggest that Visa, MasterCard and American Express will continue to be the big winners from one of my favorite themes, the gradual switch from paper to plastic,” Cramer said. “But this is not a rising-tide-lifts-all-boats situation, because Discover’s stock has been left behind and Lang doesn’t see that changing any time soon.”